HMRC targets inheritance tax valuations
HMRC has launched 9,368 checks into the under-valuation of properties included in inheritance tax (IHT) calculations and is actively targeting estates and beneficiaries, according to UHY Hacker Young.
In the year to December 2010 it raised around £70m of additional tax as the result of challenging properties valuations included in the estates of deceased people.
An HMRC spokesperson was keen to stress that these are not "investigations" but rather checks done in a matter of seconds to confirm property valuation.
HMRC said: “Only about three per cent 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 that 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."
Inheritance tax is typically payable if the assets of an estate total in excess of £325,000. Data from the Land Registry in England and Wales shows that the average house price in the South East is £274,000 rising to £410,000 in Greater London.
According to UHY Hacker Young, the tax take is set to increase as house prices creep back up to pre-recession levels in some areas
The accountancy firm explained that if an IHT property valuation is found to be incorrect and HMRC considers that "reasonable care" was not taken in establishing it, the estate and its beneficiaries could face a fine of up to 100% of the additional tax liability, as well as the additional tax due.
Mark Giddens, tax partner at UHY Hacker Young, said: “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,” added Giddens.
HMRC has previously advised estate beneficiaries to obtain several property valuations and strongly recommends the engagement of a professional valuer or chartered surveyor.
HMRC may also ask additional questions to determine whether ‘reasonable care’ was taken, such as:
- Did you seek professional advice from a qualified independent valuer?
- Was the valuer’s attention drawn to particular features of the property (such as development potential or the existence of tenancy or occupancy by people other than the deceased)?
- Was anything unusual about the valuation questioned?
Giddens added: "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."
On HMRC payment deadlines, Giddens said: “There is a window of up to twelve months, from the end of the month in which the death occurred, to submit IHT valuations before any penalty for a late account arises. However, interest starts to accrue six months after the end of the month in which the death occurs, so estate administrators are under pressure to get all the valuations in, question them if necessary, and pay the tax quickly.”