If the property is sold as an estate asset there will be capital gains tax to pay:
£10,000 - tax free allowance £3,000 = £7,000 * 24% = £1,680.
If there is more than one beneficiary and they have no other capital gains to use up their own annual tax free allowance of £3,000, it may be worth making a deed of appropriation. This transfers the asset to the beneficiaries before it is sold so the capital gain becomes a personal capital gain. The tax liability can then be reduced by offsetting their own tax free allowance of £3,000. The CGT rate for basic rate tax payers is 18% and for higher rate taxpayers 24%.
Say there are two beneficiaries inheriting equal shares in the estate. One in a basic rate taxpayer, one higher rate.
Gain of £5,000 each.
1. £5,000 - £3,000 = £2,000 * 18% = £360
2. £5,000 - £3,000 = £2,000 * 24% = £480
If there is only one beneficiary who pays tax at higher rate then there is no advantage in making a deed of appropriation as the tax free allowance and tax rate is the same.
As the difference in probate vale and sale value is small, HMRC would be likely to accept this arrangement.
Where someone would run into trouble is if the property is sold soon after probate for much more than the probate value and where the value of the estate falls into the IHT net. IHT is charged at 40%. HMRC could challenge the probate valuation and apply interest and penalties to any additional IHT payable.
