The Inland Revenue are making themselves very busy over property valuations on death (note not on sale). With more and more probate cases being tested. Some are blatant undervaluations in order to reduce the amount of tax – if any is paid.
It’s a dangerous game to play – the Revenue Inspectors don’t have to pay to take a case to court so it’s not their money that’s at risk – it really is a case of Executor beware. So what are the options.
Get three Independent Estate Agents to value, formally the property. See if there is a consensus and make sure they justify the valuation. Remember it’s not the expected sale price we are trying to get – it’s the value of the property. As an Executor you have a formal obligation to value the estate – no matter if it sells for less – the valuation is important.
Other expenses like ‘reasonable funeral expenses’ can, of course, be deducted. But Estate Agent, legal costs and probate charges are not deductible – quite a lot of unfairness built into the system already.
Where the deceased offers specific gifts, like items of jewellery these need to be valued formally and included in the estate valuation.
Key is what needs to be offered up to the Inland Revenue on death and these are.
An account of assets and liabilities.
Formal valuations for things like motor vehicles and chattels along with details of any liabilities and loans of the deceased.
Then the big one, the value of the property.
Three Estate Agents valuations as a starting point and possibly a valuation survey by a RICS Member outlining the valuation at date of death – these are normally accepted without question by the Revenue. If further work is required or there is more specialised questions to be asked then the Inland Revenue District Valuer will want to get involved – best avoided if possible.
From Rumball Sedgwick The valuation should be carried out by experienced RICS property surveyors with an in depth knowledge of the local property market. The report also needs to be compliant with current HMRC inheritance tax law to reduce the risk of the District Valuer becoming involved, which invariably delays the whole process further. https://rumballsedgwick.co.uk/valuations-for-probate/
Any costs of this are born by the beneficiaries. and not on the estate, which seems harsh but the Inland Revenue have rules for a reason – they don’t always make sense. Of course they could argue that you don’t need to appoint an Estate Agent to sell the house or ask someone to take on probate for you – and you can inherit all of the available proceeds. As the Revenue say – that’s your choice.
Often with normal household goods valuing them is hard to do. The Revenue seem to think an auction is the best place to sell – it will obtain ‘market value’. https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm21041
Figures issued today show that HM Revenue & Customs (HMRC) has increased by 26% the amount of extra IHT it receives by successfully challenging property valuations. When someone dies, any land and buildings they own are part of their estate when it comes to working out IHT. Most estates don’t have to pay because they are valued at less than the threshold: £325,000 in 2012-13. Above this, tax is paid at 40%. However, recent figures from the Land Registry show the average house price in the UK is now £246,000, and £410,000 in London.
Mark McLaughlin warns that inaccurate valuations of land and buildings for inheritance tax purposes can result in HMRC enquiries, additional tax and possibly penalties.
Some areas of tax compliance are much more difficult to get right (and therefore more of a risk in terms of making errors) than others. Valuing assets such as land and property for inheritance tax (IHT) purposes (e.g. on death) is one such area.
Land valuationsOne of the difficulties with land (and many other valuations) for IHT purposes is a lack of clear guidance on what constitutes ‘market value’. This term is simply defined in the legislation as ‘…the price the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time’ (IHTA 1984, s 160).
According to HM Revenue and Customs (HMRC), inadequate valuation of land (and buildings) is one of the biggest risks in IHT compliance. HMRC enquiries into land valuations produce large amounts of additional IHT and interest. What can be done to reduce the possibility of problems with HMRC?
Importantly items of value will need separate, formal valuations and a formal valuation of other goods remaining. My view would be that an initial position of the estate should be obtained as soon as possible in order to calculate the rough situation and then a decision made from there as to what the next stage will be.
There is a some more information here https://www.litrg.org.uk/tax-guides/bereavement/how-do-i-assess-estate-inheritance-tax-purposes
As always, please let me know if you need any help on the matter of probate.