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Could your UK estate be facing new inheritance tax fines?


Attention all UK estate owners! Could your properties be faced with new, intimidating inheritance tax fines?


According to accountants, some 5,400 estates were investigated by the tax office for underpayment of inheritance tax (IHT) last year, which adds up to about one in five.


How did this come about? HMRC (HM Revenue & Customs) have realised that there is a temptation to undervalue residential property in order to save on inheritance tax. Typically, this is considered to be the largest figure on the returns.


Mark Giddens, a partner at accountancy firm UHY Hacker Young stated that: “The rise in investigations means that more beneficiaries, who may not be cash-rich, could be hit with hefty fines. If HMRC deems that there has been a lack of care in carrying out valuations, an estate could end up doubling the tax through penalties,”


This, of course, points to several pertinent and critical facts which relate to UK expats and which could in turn severely impact their estate, specifically on death.


For one, HMRC has the power to investigate any estate, which means that no individual case is safe from their scrutiny.


This directly results in UK Residential properties being in the crosshairs of HMRC (for the tax revenue that can be realised from this asset class).  


With Common Reporting Standard legislation in place and a cross border exchange of information the norm, HMRC does, in fact, have the opportunity and inclination to investigate the estates of more and more wealthy expats.


What is inheritance tax?

IHT is essentially a tax on the estate – property, money and possessions – that is paid when someone passes away. It is considered payable once the assets of an estate total in excess of about £325,000. Above this amount, assets are liable to a tax of 40%.


Married couples, however, may combine their IHT thresholds. This means that up to the first £650,000 of their combined estate is IHT-free (since any unused nil-rate band can normally be passed on to the surviving spouse).


There is an additional threshold called the residence nil rate band, which increases year-on-year.

Inheritance Tax must be settled by the end of the sixth month after the person has died. Understandably, it’s widely loathed by the middle-classes, with frequent calls for the tax to be overhauled in recent years.


What can you do about it?

It’s imperative that UK expats or people who might own UK residential properties check their domicile if a property might possibly fall within this category of potential inheritance tax fines.


There may be ways to mitigate IHT but it’s important to seek advice before making any decisions. Support is necessary in order to help deal with the planning process.


If HMRC deems that there has in fact been a lack of care in instigating valuations, an estate could end up having to pay up to 100% in penalties.


A lot is at stake. Get in touch with me today before it’s too late.

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