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Estate Valuation Challenges by HMRC Generate £108m extra IHT

New figures show that, over the course of a year, HM Revenue and Customs (HMRC) has seen a 23% rise in the amount of money raised by challenging the valuation of estates.

The increase resulted in £108 million more Inheritance Tax (IHT) proceeds in the last full tax year to April 2013, against £88 million the previous tax year.

The amount of IHT raised by HMRC has been increasing steadily in recent years; in the last tax year alone, proceeds went up from £2.9 billion to £3.1 billion. Research by accountancy firm UHY Hacker Young shows that the amount of tax coming through challenges of property valuations is on the rise, with an average of £34,704 in additional tax duty collected in cases where HMRC was successful in challenging the submitted valuation last year, up from £27,227 in the previous tax year.

The increase in the volume of extra tax comes as a result of investigations into the valuation of properties of homeowners following their death, UHY partner Mark Giddens explained. The rise was faster than the growth seen in house prices, which implies that the taxman is using a "pretty aggressive approach" when it comes to estate valuations, he said.

The firm's research showed that in order to verify property values, HMRC turns to external sources of information, such as the Land Registry, to check prices of other properties in the area when it receives an IHT return. HMRC also checks whether there have been refurbishments or other additions to the estate that might have boosted its value and may also investigate if a property valuation appears too low compared to the price paid for the asset by the deceased.