IHT tax take up 24% as taxman challenges home value

New tactics by the taxman to challenge home valuations when the owner dies has seen HM Revenue & Customs (HMRC) inheritance tax take soar by nearly a quarter.

The taxman is increasingly tapping into online data and valuing homes in taking a more ‘aggressive’ stance against figures put forward by families following bereavement.

The result is an extra £108 million has flowed into government coffers, says a report from accountancy firm UHY Hacker.

HMRC raked in £3.1 billion from IHT in the past tax year – up from £2.9 billion 12 months earlier.

The research showed much of the increase came from revaluing homes owned by estates.

Mark Gidden, a partner at UHY, said: “Last year, the rate of increase in extra IHT clawed back from estates was at a rate faster than the increase in house prices. This indicates the taxman is taking an aggressive approach to investigating IHT claims.”

Revaluations contributed an extra £88 million in the 2012 tax year when HMRC disputed property prices – but the successful policy saw that amount rise 24% to £108 million last year.

Some of that extra money would have come from increasing house prices.

The amount of cash raised by IHT is likely to continue to rise as Chancellor George Osborne has indicated the tax-free threshold of £325,000 is like to stay frozen until at least 2018.

With property experts – like the Nationwide and mortgage brokers John Charcol – predicting house prices rising anywhere from 5% to 8% this year – the amount of cash HMRC grabs from IHT is set to keep rising.

The Chancellor’s expectations were included in statistics issued with his Autumn Statement speech in December 2013.

The figures show how IHT rises in line with house prices as the previous high was £3.8 billion in 2008, when house prices were at their peak before the financial crash and recession.

IHT declined for two years, with HMRC collecting £2.4 billion in 2010, and since then the tax take has slowly increased back to pre-crash levels.

Tax on estates can be reduced with some practical tax planning; simply making a will can see an estate of any value pass to a spouse tax-free.

Gifting property can also impact on IHT, providing the donor lives for seven years after making the gift. Tax reduces on a sliding scale if the owner dies within the seven –year period.

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