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IHT Valuations: Personal Representatives in Danger of Incurring HMRC Penalties

If an Estate includes a house, flat or land then that property will need to be valued in order to assess the value of the Estate. 

People often think that it will be enough to call in an Estate Agent.  However, some Estate Agents do not understand what is required when they are asked to produce a property valuation for probate purposes and many don’t have experience of dealing with HM Revenue & Customs.  It is a common misconception among Estate Agents that if a valuation is required for probate purposes then they should produce an artificially low valuation.  Others fail to provide a definitive figure of the property’s value, but instead state that the property is within a particular valuation bracket which may span many thousands of pounds.  The temptation for the non-professional personal representative is then to submit the lower figure in the tax return. 

This lack of understanding by Estate agents and non-professional personal representative potentially exposes the personal representative to the imposition of penalties by HM Revenue & Customs.  .  

Chartered Accountants, Hacker Young, have recently revealed some eye opening research confirming that HM Revenue & Customs has significantly increased the amount of Inheritance Tax it collects by challenging the valuation of properties within Estates.   In 2012/2013 HMRC collected in an extra £108m through such challenges, as compared to £88m in 2011/2012 – a hefty increase of 23%.   On these figures it equates to an average of £34,704 in additional tax per Estate in 2012/2013 as compared to £27,227 tax per Estate in 2011/2012.  

If nothing else this increase indicates that HM Revenue & Customs has adopted a policy of carefully scrutinising the valuations submitted by personal representatives.  As this is very clearly proving to be an extremely lucrative area for HM Revenue & Customs to focus on, we can undoubtedly expect more and more challenges in the future. 

This is worrying news for Personal Representatives and executors as a successful challenge leaves them at risk of having to pay penalties and interest.

So what is required in producing an accurate valuation that cannot be challenged? 

As the charge to Inheritance Tax on death assumes the transfer of value occurred immediately before death, the property valuation submitted to HM Revenue & Customs must be the value of the property at the time of death.  s160 of the Inheritance Tax Act 1984 specifies that the value of property at any time is the price “the property might reasonably be expected to fetch if sold in the open market at that time”.  It follows that the valuation is the open market value of the property as at the date of death.    

So, if you are a personal representative, what can you do to make sure you do things right and avoid a penalty?

The safest course of action is to make sure you have obtained specialist legal advice.  The probate solicitor will ensure that a professional valuation is obtained from a suitably qualified valuer, such as  a chartered surveyor or  chartered valuer. This is especially important where Inheritance Tax is likely to be payable.  The lawyer will provide full, concise and clear instructions to the valuer, confirming the basis of the valuation and any particular points to note regarding the property to ensure that the ultimate valuation is as accurate as possible. A specialist solicitor will scrutinise the valuation and where appropriate make subsequent enquiries of the valuer to ensure that the value is reliable and not distorted in any way. 

If the valuation is subsequently challenged by HM Revenue & Customs. the lawyer and valuer will be in your corner to argue it with them.    Admittedly this will incur further fees but that may save tax and will be a small price to pay to protect you against potential penalties and the full force of HM Revenue & Customs bearing down on you. 

If you require help with valuing an Estate or completing HMRC returns then call the specialists today

*Prices exclusive of VAT and Disbursements

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