Tax officials raised an extra £70 million by challenging the valuations of properties included in the estate of a deceased person during 2010, according to new figures.
Research recently published by accountants UHY Hacker Young Group revealed that HM Revenue & Customs (HMRC) launched 9,368 investigations into inheritance tax (IHT) valuations over the 12 months to December 2010. Where extra tax was payable, the average was £24,600.
Inheritance tax is payable if the assets of an estate total in excess of £325,000 and although HMRC says only around three per cent of estates pay IHT, past increases in property prices have made more estates vulnerable to the tax.
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 – often the children of the deceased person – could end up having to pay a maximum penalty of up to 100 per cent of the additional tax liability, as well as the additional tax due.
HMRC says that a property valuation should reflect the value at the time of the person’s death and that for an accurate valuation, a professional valuer, such as a chartered surveyor, should be used.
It also says the valuation should take into account anything that might increase or reduce the value of the property, such as repairs that are needed, an unusually large garden or access to other development land.
Mike Rapps, head of the Estate Planning & Tax department at Gregg Latchams, said: “With potentially large bills for extra tax, plus penalties, it makes sense for beneficiaries of an estate to do as HMRC suggests and work with property professionals to avoid an unpleasant financial surprise.
“Issues such as inheritance tax can be extremely complex and the input of legal professionals can be vital to ensuring that a will is drafted in as tax-efficient a way as possible, saving loved ones anxiety and expense at a later date.”
For more information, please contact the Estate Planning & Tax department.
