Q. I am an executor of my late father’s estate. I had his house valued for inheritance tax (IHT) purposes and paid IHT based upon that valuation. Although the house took a long time to sell, I eventually sold it for almost £35,000 more than the original valuation. Should I inform HMRC of the actual sale proceeds realised and, if so, will I be obliged to pay IHT on the additional amount?
A. As an executor, you are obliged to obtain a valuation of your father’s home. That valuation should be a reasonable open market value, which takes account of any considerations which might affect the value of the property (such as a need for repairs, which would depress the value; or a planning permission, which might inflate the property’s value).
Regardless of when the valuer performs their assessment, the value they place upon your father’s house should be the value as at the date of his death.
If, after having sought that valuation, it becomes apparent that it may not have been accurate, you ought to ask the valuer to reconsider their initial advice. They ought to take account of the length of time since your father’s death and what has happened to the property market during that time.
If the property has been under-valued and you have not yet applied for probate, you must write to HMRC to tell them the revised value. You will pay tax on that revised value. However, if you have already applied for probate at the time you discover the potential undervalue, it is unlikely that you will have additional tax to pay.
However, it is important to note that if the sale proceeds are greater than the valuation of your father’s house because of an appreciation in the property market (which may be the case if the property took a considerable time to sell) then, whilst no IHT would be payable on that increased value, it is possible that capital gains tax may be payable upon some or all of that amount. I recommend therefore that you seek advice from a solicitor and a chartered financial planner, who specialise in private client/probate advice, as a matter of urgency.
Q. I am about to start a new job and, for the first time in my career, I will have a company car. I understand that I have to pay for my own private mileage. How do I work out how much I owe my employer?
A. First, different companies operate different policies regarding company cars and private mileage. Some companies pay for the entire cost of fuel, in which case this is a benefit in kind (in addition to the car itself) and you will be liable to income tax on that benefit at your marginal rate.
In my experience, the majority of businesses require employees to pay private mileage. There are different ways in which this can be done. Some companies prefer to pay for the entire cost of the fuel and have the employee reimburse them for all of their private mileage (including commuting to and from your normal place of work). This enables the employer to reclaim the VAT on the fuel; however, you will be required to keep a detailed log of the mileage in respect of every journey you make. Alternatively, you can meet the cost of fuelling the car and claim the costs of your business mileage from your employer. Ultimately, the decision will be made by your employer and I suggest that you clarify their preference with them as soon as you are able so to do.
The rate at which you pay for private mileage/reclaim business mileage is set by HMRC. This depends upon a number of factors, including the fuel type and the size of the engine. HMRC has recently revised its advisory fuel rates. Details of the revised rates can be found at www.hmrc.gov.uk/cars/advisory_fuel_current.htm
Q. I am the Finance Director of a medium-sized employer with an historic final salary pension scheme that is closed to future accrual. We are in the process of preparing our accounts for the year ended 30 September 2013. I have received a provisional FRS17 pension liability figure from the auditors, which is a significant liability (in the context of both the pension scheme and the business) and, as such, needs to be addressed. Are there any steps that I can take to reduce this liability?
A. Yes, there are a number of measures that you ought to consider in order to reduce your liabilities and to mitigate the impact the pension scheme might have upon your business. However, there is insufficient scope to address them in detail here.
I recommend therefore that you speak to a chartered financial planner, who specialises in corporate pensions and liability management and who will be able to discuss the various options with you.
These might range from seeking to reduce risks within the scheme, for example by agreeing with the trustees a change to your investment strategy or securing some of your pension liabilities with an insurer; to seeking to reduce the sum of your liabilities, for example by incentivising members to forego non-statutory increases to pensions in return for a higher, level, pension (often referred to as pension increase exchange, or PIE), offering non-cash incentives to members in return for transferring their benefits out of the scheme or securing their pension, at retirement, outwith the scheme.
It ought to be noted that there is a Code of Practice governing liability management exercises which, although voluntary, ought sensibly to be considered obligatory. The success, or otherwise, of liability management exercises is governed largely by the quality of the advice/planning which is delivered at the outset. I therefore cannot emphasise sufficiently the need to seek quality, independent, advice at the outset.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
