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June 10, 2011 7:08 pm
HM Revenue and Customs clawed back almost £70m through challenges to inheritance tax (IHT) valuations on the property of people who died in 2010 – and it is continuing to actively target estates and beneficiaries.
A freedom of information request obtained by accountants UHY Hacker Young has revealed that HMRC examined 9,368 inheritance tax valuations over the last year and has raised an average of £24,000 per case in additional tax.
Inheritance tax is owed if the assets of an estate total more than the current tax-free threshold of £325,000. Beneficiaries will be able to reduce the tax owed by 10 per cent if they leave part of their estate to charity, under proposals detailed by the government on Friday. However, UHY Hacker Young says that, despite house price falls, property values still pull thousands of families into the IHT net.
Estate beneficiaries – often the children of the deceased or their families – face financial penalties if HMRC investigates an IHT property valuation and finds it to be incorrect because “reasonable care” was not taken in establishing it.
The way in which HMRC has been examining IHT valuations has been to ask whether estate administrators sought professional advice from a qualified independent valuer and whether they questioned anything unusual about the valuation. Beneficiaries are expected to draw a valuer’s attention to factors such as development potential or the existence of tenancy or occupancy by people other than the deceased.
HMRC gives the example of a country estate on which the main property was valued but which also includes other run-down properties that could be developed.
In cases where HMRC finds that “reasonable care” has not been taken, the estate and its beneficiaries could end up having to pay a maximum fine of up to 100 per cent of the additional tax liability, as well as the tax due.
Mark Giddens, partner at UHY Hacker Young, 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 per cent penalty of the additional tax, making a total of £10,400. That is a considerable sum of money to raise.”
HMRC says that if a property is later sold for less than the valuation, then the estate can come back to it and ask for the property value to be revised.
An HMRC spokesman says: “Only about 3 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.”
The tax authority has also previously advised estate beneficiaries to obtain several property valuations and strongly recommends using a professional valuer or chartered surveyor.
But Giddens says that obtaining further valuation quotes from estate agents or surveyors can deduct significant costs from estates and, ultimately, reduce their final value. “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 misvaluation will rise proportionately,” he adds.
Russell Cade, director at property specialists Move with Us, says: “It is important to get an accurate valuation at the very start of the property sales process. Using more than one estate agent, as well as online data from multiple sources, will give the beneficiaries and executors the information they need to prove the property has been accurately valued. This not only shows a clear audit trail for compliance purposes but will ensure that the estate does not incur unwanted tax penalties.”
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