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The Perils of Undervalued Probate Properties and the Taxman's Wrath

View profile for Paul Hajek
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tax man investigates undervalued probate propertyHer Majesty’s Revenue and Customs seems to have embarked on an all guns blazing quest to increase its coffers. No surprise there.

In its sights recently, according to accountancy firm UHY Hacker Young, is the area of under valuations houses and flats which form part of a deceased’s estate.

At death, it is the executors and trustees responsibility to obtain a valuation of any property that the deceased may have owned.

The so called Probate Valuation.

According to the firm, HMRC conducted 9,368 investigations into estates last year raising an additional £70m in additional inheritance tax.

Included in that figure are the fines which the Revenue levied for probate undervaluations.

The severity of the fines is proportionate to the percentage of the under value; so e.g. where a property has been undervalued by £20000 that would result in a £8000 additional charge to tax plus a 30% penalty on the additional tax making a total of £10400.

It is apparent that the Revenue may well charge 100% of the additional tax as a penalty in the worst cases of blatant under value.

What do Executors need to do?

The role of the executor is to exercise reasonable care in carrying out their responsibilities, including getting an accurate probate valuation.

There are some cases where an Executor may make their own estimate to avoid paying an estate agent to carry out a written valuation: other cases where only one Estate Agent is approached to carry out the probate valuation on the deceased’s property.

It may now be best practice to have two or three written probate valuations, so as to show to the Taxman, if he comes knocking, that all reasonable care was taken to obtain a true valuation.

It is a general truism that it is better to be safe than sorry, and an investigation from the Revenue cannot be an enjoyable experience. This would be the case now for probate valuations.

We, at Clutton Cox can advise you in connection with probate and would be happy to advise, but in any event it should pay to consult your solicitor at the appropriate time.