October 10, 2012

Inheriting tax: HMRC impose fines on undervalued estates

Leaving assets and money to loved ones in a will is, for many, a way of supporting their relatives’ futures once they have gone. For beneficiaries it can be a welcomed, and sometimes unexpected, financial boost. However, in some cases, named beneficiaries can unintentionally be left with significant inheritance tax liabilities. 

Government allowance

The Government allows for assets up to the value of £325,000 to be inherited without beneficiaries having to pay a single penny in inheritance tax. For estates valued above this threshold however, the value of assets over £325,000 is taxed at a rate of 40%. With the average house price in the South East still standing at around £260,000 despite recent falls, the £325,000 limit is not as generous as it may first appear.

Unsurprisingly for the majority of estates, houses and other property will be the sole most valuable asset inherited and will often push the value of estates above the no tax threshold. If there are not enough liquid assets in the estate to cover the tax bill, beneficiaries often find themselves forced to sell property and other large assets to cover the payment. Unfortunately, the quick sale of a property in the current housing market is not always achievable or desirable.  

In addition to the risk of a large tax liability, as if this were not enough for beneficiaries to concern themselves with, there is the added risk of being fined if the level of inheritance tax is calculated incorrectly and HMRC find reasonable care was not taken in establishing it. Who ever said ‘tax doesn’t have to be taxing’? In recent years HMRC investigated over 10,000 cases and subsequently imposed an average of £27,227 in additional inheritance tax.

The risk of under calculation

If HMRC find the level of inheritance is under calculated, beneficiaries face a hefty fine of up to 100% of the additional tax liability on top of the extra inheritance tax due. For example, if a house were undervalued by £25,000 this could result in £10,000 of additional tax and a potential £10,000 fine; a staggering total of £20,000 in additional tax liability”.

This simple example highlights the importance and benefits of having an estate professionally administered by a qualified probate solicitor. A specialist estate administrator will not only offer beneficiaries expert advice but will use experienced chartered surveyors to calculate the value of any property. This greatly reduces the risk of HMRC investigating the calculation of any inheritance tax and gives beneficiaries an accurate price with which to go to market should they wish to sell any property.

As well as delivering specialist advice and affording protection against the risk of fines,can greatly reduce the tax liability of an estate by advising individuals and couples on their wills and the various tax planning opportunities available to them. With specialist advice on wills and estate administration, inheritance tax can be effectively managed to the advantage of beneficiaries.

Receive the latest legal updates

Get important legal updates, news and opinion sent to you straight from our solicitors.
Sign Up

A Mackman Group collaboration - market research by Mackman Research | website design by Mackman

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram