HM Revenue & Customs is clamping down on the under-valuation of probate properties.
In thousands of cases it has insisted on a revaluation so that more Inheritance Tax (IT) is handed over, and also levied huge fines.
Accountancy firm UHY Hacker Young says HMRC conducted 9,368 investigations into estates and beneficiaries last year, raising an additional £70m of IT.
IT is payable if the assets of an estate total more than £325,000. In many cases, the dead person’s property is by far the major asset in an estate.
Mark Giddens, partner at UHY Hacker Young, warned that in cases where HMRC says executors have failed to demonstrate that they have taken ‘reasonable care’ to ensure a property valuation is accurate, the estate and its beneficiaries face fines of up to 100% of the additional tax liability, as well as the extra tax due.
HMRC advises the administrators of estates to get several property valuations for the purposes of IT calculations.
Giddens said: “Obtaining further valuations from estate agents or surveyors adds significant additional costs on the estates. However, with house prices in London and the south-east starting to return to pre-recession levels, beneficiaries need to be aware that the potential fine resulting from a mis-valuation will rise proportionately.
“If a property is undervalued by £20,000, this could result in an additional £8,000 tax, plus, say, a 30% penalty of the additional tax, making a total of £10,400. That is a considerable sum of money to raise when the estate and its beneficiaries may not be very cash rich.”
A spokesman for HMRC said: “Only about 3% of estates pay any inheritance tax at all, but when the value of the property can materially affect the tax payable, it’s only right we confirm the value offered. This is not an investigation but a routine check, which in the vast majority of cases simply confirms the value offered.”
Russell Cade, director of Move with Us, which specialises in selling probate properties on behalf of trusts, corporations, executors and beneficiaries, said: “The news that HMRC is investigating the valuation of properties left by the deceased highlights more than ever the importance of getting an accurate valuation at the very start of the property sales process.
“Using more than one estate agent, as well as online data such as up-to-the-minute sales and market comparisons from multiple sources, will give the beneficiaries and executors the information they need to prove the property has been accurately valued.
“This not only shows a clear audit trail for compliance purposes and proof of duty of care for the beneficiaries, but will ensure that the estate does not incur unwanted tax penalties in the future.”
Comments
The situation is straightforward.
A valuation, whether for probate, sale or matrimonial purposes is based on sound comparable sales evidence. Clearly the sales appraisal will specify a range of value for marketing purposes, but the two formal valuations must be based on locally achieved house values, otherwise with the current high disparity between sale and asking price in many regions of the UK, any other assessment of value is at best a shot in the dark.
I don't see the problem. I work a lot in the Probate area and rely on Solicitors and Exectutors instructing me, as a specialist in the field, to produce an accurate valuation that I am prepared to stand by if challenged by the CTO and the DV. Sometimes a modest adjustment of figures is thereafter agreed with the authorities but, as it is always before probate, there is no penalty.
Personally, I get very annoyed when told that an Executor is getting more than one value for probate purposes and, to a certain extent, it colours the way that I present my report. In my view, the valuer's report is an integral part of the probate application and should be sent, in full, to the CTO with the papers.
As far as I am concerned, I do a professional job, just as much as the solicitor does, and usually work together with the solicitor involved in each case, and I expect a professional fee. If, as and when a subsequent sale results, I sometimes then remit my fee into the commission, but that is as far as I am prepared to go.
Frankly, if valuers are not familiar with the requirements for valuation for probate, they are best to steer clear of this sort of work and leave it to the professionals.
Known about this for some time and the word probate has come out of our letters and we describe a market appraisal - simple.
The probate office have been doing the rounds of 'we are not happy about these below market numbers' for some while now and its probably about a year or more. A local form of solicitors informed us of this and I am sure there are many fims who know but just can not be bothered to let us agents who are at the sharp end know - typical. I wrote to 5 local solicitors and got one reply!
Looks good against the big firms setting aside huge sums for what is now seen as an overvalue for mortgage purposes.
Most solicitors in my area seem to demand three 'Probate' valuations are obtained by the executors but then tell them they should get them 'free' as the agent can be advised that there 'will probably be a sale soon' even when they and the lawyers know there will not be. Are the agents exposed to any penalties from HMRC where executors are fined? I assume we are exposed to executors' claims if we get the figures wrong - even if we don't charge.