When you sell a property the proceeds are normally fairly easy to establish. What if the property was inherited though? What is the deemed cost? Well it’s actually easier than you think. The value of the property at the date of death of the person that left it to you will be your deemed cost. Now I could end this one here but let’s think about what happens when someone passes away.
There are two taxes that come in to play on death. Inheritance Tax affects the estate of the deceased and as I have said capital gains tax is affected because the values wash through in to the hands of the beneficiaries. What often happens though is people panic when dealing with probate and valuations can end up all over the place.
For some they panic that there will be IHT so they argue that the value of the property should be as low as possible. This seems to be done in a rather irrational way even where there is not Inheritance Tax on the estate. The problem of course is that the base cost for a future sale is fixed by the same figure. This means more tax will be paid by the eventually seller for absolutely no reason at all.
Just as often people dealing with estates will have an eye on the Inheritance Tax due and where it is due they will equally try to argue a low value to save 40% tax. Now on the face of it reducing IHT in favour of higher CGT seems logical. So a shift of £10,000 on values could save £4,000 IHT at a future cost of only £2,400. No brainer! However don’t forget that the valuation isn’t just for you to decide. The value is the value. HMRC have a team of people ready to pounce on valuations that don’t stack up. What should you do then? Get proper valuations and use them at all times.