In the year to December 2010, HM Revenue and Customs (HMRC) raised in the region of £70 million in additional tax as a result of challenging property valuations included in the estates of people who had died.
Inheritance Tax (IHT) is payable if the value of the estate is above the ‘nil-rate band’ or ‘threshold’ announced each year in the Budget. The IHT threshold is currently £325,000. In all, HMRC queried valuations in 9,368 cases, which is a rate of approximately one per 50 deaths. Only about three per cent of estates pay IHT as the majority are either below the IHT threshold or pass to a spouse or civil partner, so the likelihood of a valuation being challenged where IHT is, or could be, payable is fairly high.
HMRC have stressed that the cases arose not as a result of specifically targeted investigations but from routine checks carried out to confirm the value put on the assets of an estate. These may give rise to additional questions to ascertain whether ‘reasonable care’ was taken when valuing the property, which include:
- Did you obtain professional advice from a qualified independent valuer?
- Was the valuer’s attention drawn to any factors that could affect the value of the property – for example, any development potential; and
- Was anything unusual about the valuation queried?
Where the value of an estate asset has been understated, beneficiaries could face a penalty of up to 100 per cent of the additional tax liability, on top of the additional tax due. As estate administrators only have a limited amount of time in which to obtain valuations, question them if necessary and pay any assessment of tax liability, it is important to ensure that the necessary valuations are put in hand promptly.
If your estate is likely to be subject to IHT, we can assist you with tax planning to ensure that, to the fullest extent possible, it ends up in the hands of your family, not HMRC’s coffers.
Click here for guidance on how IHT works.