Last year HMRC carried out almost 9,500 tax investigations into inheritance tax valuations leaving grieving families in despair. The investigations into estates and beneficiaries raised an additional £70m by questioning property valuations included in the estates of deceased people which is, on average, £24,600 extra tax per case. Inheritance tax is only due and payable if the assets of an estate total more than the inheritance tax threshold which currently stands at £325,000 and is charged at 40%. However, despite the recent drop in house prices, the value of property is still trapping thousands of families into the clutches of inheritance tax. HMRC are clamping down on property valuations and seem to be targeting beneficiaries who are claiming that a property they have inherited is worth less than it is in order to reduce their tax bill.
If HMRC find that reasonable care was NOT taken during the valuation of the property, including whether they sought professional advice from an independent valuer and whether they questioned any unusual aspects of the valuation, then the estate, and its’ beneficiaries could be fined up to 100% of the additional tax liability. Inheritance tax has long been thought of as a tax for the wealthy but any family left with an estate consisting of a little more than an average-sized property is likely to fall into the inheritance tax bracket. A property which is undervalued by £20,000, for instance, would give rise to an additional £8,000. HMRC could then award a 30% penalty for example which would result in a total of an extra £10,400.
When considering that someone may not be very ‘cash rich’, £10,400 is a considerable amount of money to pay. Although estate beneficiaries have 12 months after the death to submit valuations for inheritance tax purposes, they only have 6 months before HMRC can start charging interest. The result of this is that many families are stuck between the devil and the deep blue sea as there is obvious pressure for beneficiaries to file an inheritance tax valuation to HMRC within the 6 month window but they also need to ensure they submit the most accurate valuation.
HMRC have in the past advised that several valuations should be obtained prior to filing an inheritance tax valuation and engage a chartered surveyor but the cost of this is often beyond people’s reach resulting in the mis-valuation of property.
If this rings clear to you and you are currently struggling along with an Inheritance Tax battle then you should seek professional advice immediately.
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