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IHT Planning - Repair To Property Before And After Date Of Death


Julie Butler - Expert Author

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A recent Land Tribunal case Tapp v HMRC 2008 EW Lands TMA/284/2008 has highlighted the importance of market value of property at date of death and interaction of the state of repair.

In the Tapp case the District Valuer (DV) only visited the property two years after the date of death.

Market Value

The basis of valuation for inheritance tax (IHT) is market value (s.160 IHTA 1984), – i.e. the price that would be paid by a willing buyer to a willing seller.

Clearly the valuation should be undertaken as soon after the date of death as possible.  If a professional valuation is not undertaken, photographic evidence of the property and the state of repair should be be undertakenobtained.  Clearly beneficiaries and/or executors who do arrange to have repair work carried out should keep records of work done ready for the valuation.

The valuation is clearly important for IHT planning and establishing IHT liability.  The tax relief on the expenditure must also be considered – is this a capital gains tax (CGT) expense for the improvement or is this a cost to offset against income?

Repairs to Farms

The fact that Rrepairs to farms which may attract 100% Agricultural Property Relief (APR) and/or Business Property Relief (BPR) as,  opposedwhilst  to non-business property does not benefit from this these reliefs and could be the subject to of some death bed or later years planning.  For example:

1)    Farmer “J” owns a farm worth £2 million including a farmhouse worth £500,000.  It is anticipated HMRC could challenge accept agricultural value of 60% so £200,000 will may not qualify for APR and BPR.  Farmer “J” has recently sold development land and has £400,000 cash due to savings and this sale.  The obvious tax planning is to rollover the gain into more land.  Entrepreneurs’ Relief would not be advisable available as it would not be a material sale has not been made.  The cash is clearly “IHT vulnerable”, i.e. will not be covered by the “nil rate band”.  Rollover can save CGT and ensure the replacement property for IHT.  The rollover could be improvements to the farm.

2)    Farmer “O” owns a farm worth £3 million including a farmhouse which could be subject to restriction.  Farmer “O” has savings and investments of £600,000 and the farm is in a bad state of repair due to the deteriorating health of Farmer “O”.  If cash is used on repairs and improvements the value of the farm should increase and be subject to APR and BPR as appropriate at 100%.

The recent Tapp case shows an example of late DV visits and questions over repairs indicating the need for photographic evidence at various stages.  There are tax planning opportunities for the planning use (and timing thereof) of “inheritance tax vulnerable” cash.  There is also the question of the complexity of what exactly is “market value” at the time of writing.

There are those who argue that uncertainty over the question of identifying market value of willing buyer and willing sellermarket values may be uncertain (under the ‘willing buyer, willing seller’ principle) in today’s credit cruncheconomic climate.

There is no doubt that “repair and market uncertainty” can be used as tax planning tools.

About the Author

Article supplied by Julie Butler F.C.A. Butler & Co, Bowland House, West Street, Alresford, Hampshire, SO24 9AT.  Tel: 01962 735544.  Email;, Website;

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification ISBN: 0754517691 (1st edition) and ISBN: 0754522180 (2nd edition) and Equine Tax Planning ISBN: 0406966540.  The third edition of Tax Planning For Farm and Land Diversification is currently being written and will be published shortly.  To order a copy call Tottel Publishing on 01444 416119.

19 November 2008

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Article Published/Sorted/Amended on Scopulus 2009-03-02 14:01:53 in Tax Articles

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