Death and taxes might well be inevitable, but a bit of care can save you the stress and expense of unexpected Inheritance Tax penalties.
Research has shown that more than 4,000 bereaved families were investigated by HMRC last year amid suspicions that the full value of the estate had not been declared.
Jonathan Edwards, an Associate in the wills, probate and lifetime planning team at FBC Manby Bowdler’s Telford office, said it was important to make sure everything was calculated properly.
He said: “Getting it wrong can result in stiff penalties being levied by HMRC at an already distressing time.
“It is the duty of whoever is handling the estate to establish the full value and calculate the amount of Inheritance Tax owed.
“Subject to any available allowances, this includes anything the deceased person might have given as gifts in the seven years before they died – if granny gave you her diamond ring before she died, the value should be included in the assets.
“HMRC have a massive database of information at their disposal to give them an indication of an estate’s worth. That includes bank accounts, property valuations and, crucially, insurance details.
“If fine art and jewellery has been insured, HMRC will have a rough idea of what it’s worth – there is no point trying to hide it! If they think you haven’t declared everything, they will start an investigation.”
Jonathan said good legal advice is essential, both in planning before a person dies and in preparing probate and Inheritance Tax calculations after death.
He said: “Gifts of valuables is one area that often trips people up, because they don’t realise that gifts within seven years of death are still counted as part of the estate.
“If you give someone valuables as a present, make a note of what you gave, when, and its rough value, so that can be used as evidence in any dispute.
“We can help clients make sure they correctly value the estate at time of death by making full, enquiries and ensuring that relevant gifts made within seven years have been included. We can also advise on the many reliefs and exemptions that might apply to reduce the Inheritance Tax bill, and help get professional valuations which should satisfy HMRC.”
The first £325,000 of someone’s assets can be bequeathed tax-free, with an additional potential allowance of £175,000 if the family home is left to direct descendants, such as children or grandchildren. With married couples, it may be possible to transfer the same allowances (up to £500,000) from the estate of the first to die. Everything over all the allowances is taxed at 40 per cent.
Jonathan added: “With average house prices going up every year, many families who might otherwise have assumed they “weren’t rich enough” are now being pulled into the Inheritance Tax bracket.
“An HMRC investigation can be very stressful. Proper legal advice well in advance can save a lot of heartache - and money.”
For more information about safeguarding your estate and advice on Inheritance Tax, contact the wills, probate and lifetime planning team on 01952 211320.
