In this weeks Farmers Weekly Business Clinic, Penelope Munro from the Thrings Private Client Team answers this question:
I am an executor of an estate in which I am the sole beneficiary. Because of my financial situation, I would like to sell some of the land in the estate as soon as possible.
Is it possible to sell it while I am waiting for processes such as probate and land registry to complete, and before the position on agricultural tax relief for inheritance tax is finalised?
I would like to do as much of this as possible by myself as I don’t currently have funds available to pay professional advisers such as estate agents and solicitors. I imagine mine must be a fairly common situation among those inheriting farms and agricultural estates.
You are correct to say that you will not be alone in facing your current situation. Amid increasing financial pressures facing agricultural families, it is understandable that you are keen to improve your position as quickly and cost-effectively as possible.
However, dealing with any estate administration can be a highly emotional process. You are likely to come across many pitfalls along the way, and any mistakes made at this stage are likely to store up substantial headaches for later on so I would encourage you to seek professional advice.
If, however, you are determined to do as much of the work yourself, we would need to look at the relevant processes, how they work, what you will need to pay, and when. The first stage is to apply for the Grant of Probate. The Grant is produced by the Probate Registry and shows to those concerned that money and other items previously belonging to the deceased can be safely handed over to the executor.
In order to apply for the Grant of Probate, there is a need to value the estate’s assets and liabilities as at the date of death and this determines whether Inheritance Tax is payable and how much. In relation to land, we would strongly recommend you obtain a RICS valuation. The surveyor and/or the accountant who dealt with the deceased’s affairs, should be able to comment on the availability of Business Relief and Agricultural Relief to be deducted against the value of the estate for Inheritance Tax purposes. HM Revenue and Customs (HMRC) will normally look at whether these reliefs are correctly applied only after the all-important Grant of Probate has issued.
Of course, the formal land valuation is also essential in determining the asking price for the land to be sold and will also determine the acquisition value for Capital Gains Tax purposes in the event of a later sale.
I should mention that there is nothing stopping you putting the land on the market and even agreeing a sale and proceeding through the conveyancing stages before the Grant of Probate has issued, but please note that contracts for sale cannot be exchanged until the Grant of Probate is to hand.
Probate costs for a solicitor to assist in the estate administration are normally paid from the funds within the estate, and as it is not normally possible to obtain funds from that estate until the Grant of Probate has issued, solicitors will not normally expect payment for their invoices until this point.
You will normally have to personally cover the probate court fee, which stands at £273 plus £1.50 per office copy of the Grant of Probate but you can be reimbursed for any expenses paid out once the estate comes into funds.
If there is Inheritance Tax to pay, the tax due is paid from the estate - but if there are insufficient liquid funds to pay all of the tax, the tax due on property can be paid in 10 annual instalments to help with budgeting. Do be aware that interest will accrue on the unpaid tax.
An estate would not normally be fully distributed to beneficiaries until HMRC has issued clearance and clearance would only be issued when all Inheritance Tax (and any interest) has been paid. That said, depending upon cash released from the sale of land, it may be possible for you to receive some of your inheritance before clearance.
With all the above in mind, we would strongly advise that you do instruct professional advisors in the knowledge that they will add value by ensuring that any reliefs to Inheritance Tax are correctly applied and/or by advising on mitigating Capital Gains Tax on the sale of any assets if they have risen in value since the date of death. It may feel now that you could do without the expense, but they can be a useful tool to have by your side when navigating an estate administration.