HMRC is increasing its focus on property valuations submitted as part of Inheritance Tax (IHT) returns, with the number of challenges rising by more than 20% over the past year.
With frozen IHT thresholds and continued resilience in UK property prices, more estates are being pulled into the IHT net. Residential property often makes up a significant proportion of an estate’s value, making it a key area for HMRC scrutiny.
Advances in technology and the use of AI are also making it easier for HMRC to identify inconsistencies or valuations that appear out of line with market data.
Vicky Prior, Tax Partner at Forrester Boyd, said:
“Accurate property valuations are becoming increasingly important when dealing with an estate. Executors who rely on informal estimates risk additional tax liabilities, interest charges and potentially penalties if HMRC believes reasonable care has not been taken.”
If a property is undervalued on an IHT return, HMRC can charge additional tax alongside late payment interest, currently set at 7.75%. Penalties may also apply where inaccuracies are considered careless.
Professional property valuations can help demonstrate that reasonable care has been taken. While some executors may obtain several estate agent appraisals, more complex or higher-value estates may benefit from advice from a qualified valuer and tax adviser.
The pressure on families is unlikely to ease any time soon. IHT thresholds are currently frozen until April 2031 and from April 2027, most unused pension pots are also expected to fall within the scope of IHT unless passed to a spouse or civil partner.
As a result, estate planning is becoming increasingly important. Keeping wills up to date, reviewing property ownership and considering lifetime gifting strategies could help families reduce future IHT exposure and preserve more wealth for future generations.
The government’s guide to how to value an estate for IHT and report its value can be found here.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
