{"id":25782,"date":"2021-10-26T13:42:14","date_gmt":"2021-10-26T12:42:14","guid":{"rendered":"https:\/\/www.propertysurveying.co.uk\/newsletter\/?page_id=25782"},"modified":"2021-11-30T15:27:57","modified_gmt":"2021-11-30T14:27:57","slug":"inheritance-tax-revenues-set-to-increase","status":"publish","type":"page","link":"https:\/\/www.propertysurveying.co.uk\/newsletter\/?page_id=25782","title":{"rendered":"Inheritance tax revenues set to increase"},"content":{"rendered":"

Inheritance tax was introduced in March 1986. It is the tax paid on a person’s estate when they die, and comprises the property, possessions and money of the deceased. Inheritance tax was once aimed at the wealthiest tiers of society, but the number of people paying the tax is on the rise.<\/p>\n

Over the last decade, the amount of inheritance tax paid has doubled, from \u00a32.7 billion to \u00a35.4 billion, although only around 4% of estates actually pay inheritance tax.<\/p>\n

A ‘nil rate band’ of \u00a3325,000 (for the tax year 2021\/22) is deducted from the value of the estate before inheritance tax is charged. A further ‘residence nil rate band’ of \u00a3175,000 applies in most cases, and can be claimed against the primary residence owned by the deceased and passed to a direct descendant.<\/p>\n

Married or civil partners do not have to pay inheritance tax, regardless of how much their partner’s estate is worth. They also inherit the inheritance tax of their partner, so an allowance of up to \u00a31 million would be applicable when they die.<\/p>\n

The value of the estate over the allowance is taxed at 40%.\u00a0There are ways to reduce the amount of inheritance tax due on an estate, including leaving a minimum 10% money to charity. Other factors may also increase the amount of tax due, and could even reduce the nil rate band on residency.<\/p>\n

Inheritance tax may only affect very few of us at the moment, but the rising value of property may soon change all that.<\/p>\n

The Inheritance Tax Act 1984<\/a> states that “on the death of any person tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before his death.”<\/p>\n

The definition of \u2018market value\u2019 is: \u201cthe value at any time of any property shall for the purposes of this Act be the price which the property might reasonably be expected to fetch if sold in the open market at that time.”<\/p>\n

Getting the property valuation wrong can leave beneficiaries of deceased estates vulnerable to additional taxation and penalties that would not have been the case had the valuation been correct.<\/p>\n

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House prices are still rising in most areas (see our latest monthly Property Market Fact File<\/a> for more information). This has made it more important that accurate probate valuations are undertaken, particularly in light of recent reports that HM Revenue & Customs (HMRC) has collected an additional \u00a3274 million of inheritance tax from more than 5,000 investigations during the tax year 2019\/20. The sum could be as much as a quarter of all estates that attract inheritance tax.<\/p>\n

Given the sums involved, it is likely that investigations will continue to be made in these numbers. Historically, more investigations take place during times of economic uncertainty, for instance, following the 2008 financial crisis. In the year to December 2010, there were 9,368 investigations by HMRC into estates and beneficiaries, which raised additional tax of \u00a370 million by challenging the valuations of properties included in the estates of deceased people. In each case, where an incorrect property valuation was found to have been produced without ‘reasonable care’, the estate and its beneficiaries were required to pay up to 100% additional tax liability in addition to the inheritance tax due.<\/p>\n

Most executors are aware of their legal obligation to complete a declaration for HMRC when dealing with the estate of a deceased person. HMRC will investigate some of those declaration at random, but will also be on the look out for ‘red flags’, that can cause significant delay in the administration of an estate and could leave executors personally liable for any penalties.<\/p>\n

The figures strongly reinforce the need for a professional to carry out any valuations needed for inheritance tax purposes. A point stated clearly on the HMRC<\/a> website:<\/p>\n

“HMRC strongly recommend that you use a professional valuer because they\u2019ll make sure the valuation is as accurate as possible. You\u2019ll have to pay their fees, but you may be able to claim these back from the estate later.”<\/p>\n

Additionally, during investigations into whether ‘reasonable care’ had indeed been taken, HMRC is reported to have asked certain questions including:<\/p>\n