It was revealed last week that HMRC has increased its Inheritance Tax (IHT) revenue by 26%, simply by successfully challenging probate property valuations.
The current threshold for paying IHT is £325,000. Above this, an estate will be taxed at 40%. This means of course that for valuation purposes, it is better for the beneficiaries if a probate property is valued as low as possible, to try and avoid paying any IHT at all.
The recession has struck hard however, and HMRC is now querying many valuations which, it feels, may be inaccurate or misleading.
In 2011-2012, HMRC gained an additional £88m in revenue, simply by adjusting submitted probate property valuations. Whilst most valuations are carried out by chartered surveyors or other probate property experts, HMRC has gone on to argue in some cases that various aspects have been overlooked – in particular, the “potential” of a property. All of which of course, will add to its value.
In particular, executors should be wary of submitting an exceptionally low valuation in comparison to surrounding properties. If a value stands out, HMRC will check sale prices for neighbouring houses to ensure that it is accurate. If not, executors could be liable to a fine of up to 100% of the additional value.
Should the property be overvalued however, IHT can be claimed back if it is sold for less than the probate valuation price, within four years of the owner’s death.