Estate Property - Importance of Valuations

HM Revenue and Customs (HMRC) have recently hosted some conferences for professional practitioners about Inheritance Tax (IHT). It seems that one of practitioners’ main concerns has been the charge to IHT on properties, the values of which may have fallen significantly since the owner died.

There is a procedure for claiming a refund of overpaid IHT when a property is sold for less than its probate value. However, HMRC’s view is that a mere fall in the value of a property is not enough to warrant an adjustment to an IHT liability. HMRC advise that ‘Where the value of real or leasehold property has been accepted as returned, or agreed through negotiations, and tax has been paid and accepted based on that value, then that valuation is final. The valuation can only be re-opened if it can be shown that:

• information affecting the value of the property, that was available at the time of the valuation, was not taken into account; or
• new information affecting the value of the property has come to light, and that information would reasonably have been available at the time of the original valuation.’

Over the last 18 months or so, with property values in “freefall”, this has been a recurring issue for practitioners. However, if the property market is now “bottoming out” or improving, what are the implications for executors selling properties for more than their initial probate valuation?

HMRC can levy penalties if the original IHT valuation is too low. However, HMRC have commented that ‘Whilst each case is dependent upon its own facts, if instructions for the valuation of a property are given on the correct basis, i.e. as a hypothetical sale in the open market under normal market conditions, and marketed properly with no discounts for a quick sale or the time of year etc., then any uplift in value that is agreed is unlikely to attract a penalty.’

It's my opinion that clearly the emphasis is on demonstrating compliance with the HMRC’s approach. Where you have an estate that appears to be chargeable to IHT, it makes sense to take legal advice and it is key that professional property valuations are obtained and retained as evidence. I understand some people are suggesting that as many as 3 estate agent’s valuations should be obtained. Certainly, where a definitive figure is required, a valuation to RICS (Royal Institution of Chartered Surveyors) standards should be commissioned.”

If executors act on my recommendations, they should go a long way to demonstrate that they have exercised reasonable care in submitting their initial IHT valuation. Nevertheless, even if property valuations are obtained by executors, this will not in itself always determine whether executors have exercised reasonable care. HMRC will still ask the following questions:

• Was professional advice sought?
• Were instructions given on the correct basis?
• Was the valuer’s attention drawn to particular features of the property (such as development potential)?
• Was anything unusual about the valuation questioned?