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Published On: February 17, 2014 | Blog | 0 comments

Undervaluing a property ever a good thing?

It is natural to make strategic financial decisions. However, undervaluing property could expose you to other liabilities. In this blog I will discuss the potential consequences of undervaluing a property in estate administration.

Every estate is entitled to a portion of their estate free of inheritance tax. That tax free element is known as the “nil rate band”, currently £325,000. If the value of the estate is close to the nil rate band, the lowest open market valuation for property will seem the most attractive.

Conversely, if the value of the estate is likely to be well within the nil rate band there can be disadvantages of valuing it too leanly.

I am dealing with a probate case where the deceased’s property was valued at around £200,000 at the time of her death; so well within the nil rate band. The deceased left her 50% share in the property to her two sons. The property was jointly owned with her husband. Her sons agree to postpone the sale so that he can carry on living in the home.  As a result, when the property sells in three years time, the sons will be liable for Capital Gains Tax on any increase in value of the property since the date of their mum’s death. If the property was valued on the low side for probate reasons, the Capital Gains Tax will be much greater and no tax saving will have been made.

Executors have power to postpone sale, but if they do they must be aware of Capital Gains Tax consequences when submitting valuations. Valuing too low could increase the Capital Gains Tax exposure. I am not a tax specialist but this is something to take advice about if you are dealing with an estate. Anthony Gold have a dedicated Wills and Probate department who would be able to assist you.

Next time I will discuss exposure to having a transaction set aside if you sell property at a reduced value.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

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