HMRC targets property valuations in inheritance tax inquiry

Published 06th Jun 2011

• IHT property investigation targets 9,500 estates
• HMRC can impose fines up to 100% of additional tax liability


HM Revenue & Customs has targeted increasing numbers of bereaved middle England families by carrying out almost 9,500 investigations into inheritance tax valuations last year, according to a leading accountancy firm.

UHY Hacker Young said HMRC had conducted 9,368 investigations into estates and beneficiaries in the year to December 2010, and raised additional tax of £70m by challenging the valuations of properties included in the estates of deceased people.

Inheritance tax (IHT) is payable if the assets of an estate total more than the current tax-free threshold of £325,000. UHY says that, despite recent house price falls, property values still pull thousands of families into the IHT net. But estate beneficiaries – often the children of the deceased and their families – face financial penalties if HMRC investigates an IHT property valuation and finds it to be incorrect because "reasonable care" was not taken during the valuation.

HMRC will check by asking whether estate administrators sought professional advice from a qualified independent valuer and whether they questioned anything unusual about the valuation. Tax inspectors would also expect estate administrators to draw the valuer's attention to particular features of the property that might affect its value (such as development potential, an existing tenancy or occupancy by people other than the deceased).

If HMRC finds that reasonable care was not taken, it is able to fine the estate and its beneficiaries up to 100% of the additional tax liability, as well as the extra tax due.

Mark Giddens, partner at UHY, says: "Inheritance tax doesn't just affect millionaires, but most of middle England where the estate may consist of little more than an average-size property, and a family member may take on the task of administering the estate themselves.

"If a property is undervalued by £20,000, this could result in an additional £8,000 tax, plus, say, a 30% penalty of the additional tax, making a total of £10,400. That is a considerable sum of money to raise when the estate and its beneficiaries may not be very cash rich."

Anyone in charge of a deceased person's estate has a year to submit an IHT valuation before they incur a penalty for late account filing. But interest starts to accrue six months after the end of the month in which the death occurs, so estate administrators are immediately under pressure to get all the valuations in, questioned if necessary, and the tax paid quickly.

It means that many families are caught between trying to file an IHT valuation within the time limit and taking the time to file the most accurate valuation they can. HMRC has previously advised estate beneficiaries to obtain several property valuations and engage a professional valuer or chartered surveyor – though the cost of this is often beyond families.

Giddens adds: "Obtaining further valuations from estate agents or surveyors adds significant additional costs on the estates. However, with house prices in London and the south-east starting to return to pre-recession levels, beneficiaries need to be aware that the potential fine resulting from a mis-valuation will rise proportionately."

A spokesman for HMRC said: "Only about 3% of estates pay any inheritance tax at all, but when the value of the property can materially affect the tax payable, it's only right we confirm the value offered. This is not an investigation but a routine check, which in the vast majority of cases simply confirms the value offered. This helps to protect both the exchequer and the taxpayer."

The Revenue also said that the property part of an IHT bill can be settled over 10 years if it remains unsold, though this is impractical for many families who need to sell the property in order to pay the tax bill.

Source: ' Guardian '

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