For many people, the most valuable asset in their estate on death is their residential property. The value of the property, particularly in cities like Edinburgh, can mean that otherwise small estates become subject to Inheritance Tax. It is important to report an accurate value of the property to HMRC for Inheritance Tax purposes, with fluctuations in the market making this quite challenging for non-professionals.
Recently there has been an increase in estate investigations by HMRC regarding potential Inheritance Tax underpayments. The evidence indicates that residential property valuations are the most likely to be queried by HMRC. It has been reported such investigations made up a quarter of all taxable estate investigations by HMRC in 2017/18, representing an increase of 5% from 2016/17.
Should HMRC find that Inheritance Tax has been underpaid, there can be significant tax implications. Additional Inheritance Tax at 40% may be due following a revised valuation of the property, plus interest will be due on any under paid amount. There is also a potential penalty of up to 100% of the Tax.
With this in mind, it is important to instruct a professional valuation of any residential property in an estate where Inheritance Tax may be due. While a professional valuation can still be questioned by HMRC, it acts as an important guideline in any discussions with HMRC or the District Valuer (the Government’s Surveyor) about a disputed property value. A professional valuation is strong evidence in favour of the original value submitted to HMRC and should always be favoured to an estimate in taxable cases to limit the chances of an investigation.
Specialist Executry (Probate) Solicitors
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