HMRC Crackdown on Estate Undervaluation - Gilbert Tax

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HMRC Crackdown on Estate Undervaluation

HMRC investigations into inheritance tax avoidance have seen a rise as the revenue looks to crack down on the undervaluing of estates. An accountancy firms claims that HMRC’s increased focus on estates it believes have intentionally undervalued residential property to minimise inheritance tax bills has resulted in an increase in investigation activity.

The numbers support the claim, with the 2017/18 tax year seeing a 5% increase in inheritance tax investigations, rising to 5,400 from 5,100 in the previous year. Residential property is a particular area of focus for HMRC, where they are believed to be stating that additional value should be attributed to certain properties, such as where there is potential for refurbishment or the development of attached land.

Whilst there is an obvious temptation to undervalue residential property to minimise IHT liability, there are expensive consequences if HMRC investigation and rule against the defendant. Where underpayment is found by HMRC, the estate may have to pay the full amount of tax owed, plus a penalty that could be as much as 100% of the tax owed.

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