How to avoid an inheritance tax investigation

Notwithstanding the emotional and financial difficulties that you may find yourself facing following the death of a loved one, the taxman may still elect to investigate the inheritance tax liability on the deceased’s estate – and issue hefty penalties where payment is found to have fallen short of what is due.

Needless to say, it is vital that you get the right advice at the right time. Below we look at how it all works and the importance of securing expert legal advice long before the taxman takes a look at what is owed.

How does inheritance tax work? 

As the law currently stands, we are each entitled to an inheritance tax allowance of £325,000. This is known as the inheritance tax nil-rate band. The net effect is that you are able to pass on to your loved ones up to £325,000 tax-free.

For anything over and above this threshold, a standard inheritance tax rate of 40% will apply to the remainder of the estate. For example, if an estate is valued at £500,000, the tax bill will be £70,000, ie; 40% of £175,000, the difference between the value of the estate and the nil-rate band of £325,00.

However, as of April 2017, where you are leaving property to a family member you may also be entitled to a residence nil-rate band. This will mean you will pay even less inheritance tax. For 2019-2020, this new allowance rose to £150,000. It will rise by £25,000 again in April 2020, to a total of £175,000.

In most cases, married couples and civil partners are also allowed to pass their possessions and assets to each other tax-free. As such, by using both tax-free allowances, this can effectively double the amount a surviving partner can leave behind to their loved ones without incurring any inheritance tax liability.

What is likely to cause the taxman to investigate?

Although the available tax allowances mean that many estates will not be subject to any inheritance tax whatsoever, there are plenty of instances where the value of an estate will still exceed the relevant thresholds.

Furthermore, following the recent legislative changes that saw the introduction of the new residence nil-rate band, HMRC is increasingly targeting estates it believes have undervalued residential property to avoid the payment of IHT.

Statistics show that almost a quarter of estates are investigated over IHT. For the tax year 2018 to 2019, HMRC opened 5,537 inheritance tax investigations, equating to almost one in four of the 22,000 estates on which the tax fell due.

How do I avoid an inheritance tax investigation?

There is no guaranteed way of avoiding an inheritance tax investigation. That said, you can minimise the risk of this happening by ensuring that you instruct an expert to deal with the legalities of your loved ones’ estate.

The legislation relating to inheritance tax rates, not least the rules for the new residence nil-rate band can be complex. Moreover, even where there is nothing to pay, you may still be required to fill in complicated tax forms to notify HMRC.

By seeking expert advice, you can have the peace of mind that the estate will be administered correctly, and an investigation by the taxman is far less likely.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

How to help prevent property fraud

Sadly, homeowners are increasingly falling victim to property fraud, not least because the tactics used by fraudsters are becoming much more sophisticated. Fortunately, there are ways in which you can minimisthe risk of fraud, thereby protecting what is likely to be your most valuable asset.

Below we examine what property fraud means, when property is most likely to be targeted, and how to best protect your property from the fraudsters.

What is property fraud?

Property fraud is where criminals attempt to gain ownership of a property by impersonating the registered owner, or by using a forged document to transfer it into their own name – and thereafter selling the property to a third party, or fraudulently raising money by mortgaging the property.

Who is at risk from property fraud?

Fraudsters know no bounds and, as such, every homeowner is potentially at risk from property fraud. However, the advice from Land Registry is that you are more at risk if you fall into any one of the following categories:

• Your identity has been stolen

• Your property is empty

• Your property is rented out

• You live overseas

• Your property isn’t mortgaged

• Your property isn’t registered with HM Land Registry

How do I protect myself from property fraud?

There are a number of steps you can take to protect your property from being fraudulently sold or mortgaged, in particular by registering your property with HM Land Registry.

Land registration not only makes property ownership more transparent, it also makes it more valuable, by recording and guaranteeing who owns the property and also noting significant rights that other people have over it.

Your property will be registered if you bought it, or mortgaged it, any time after 1998. If you are unsure, you can always check the online register. 

If your property is not registered you should make an application to Land Registry to register voluntarily. You should also ensure that your contact details are kept up-to-date, especially if you rent out the property and live abroad.

In addition, Land Registry offer a free-of-charge Property Alert Service that can be found at www.gov.uk/property-alert. Having signed up to this service, you will be notified by Land Registry of any relevant applications in relation to the property, for example, if someone tries to use your property for a mortgage. In this way you can track any changes to the register, giving you the opportunity to act upon these to prevent any fraudsters getting away scot-free.

For those of you falling into one or more of the risk categories set out above, or where you otherwise fear that your property is particularly at risk from fraud, you should also apply to have a restriction placed on your title.

This will prevent Land Registry from registering a sale or mortgage on your property, save except where a solicitor or qualified conveyancer can certify that any such application was made by you.

Can I be compensated for loss caused by property fraud?

Over the course of the last decade millions of pounds have been paid out under the Land Registry statutory indemnity scheme because of forgeries.

This is not to say, however, that every claim will be successful, for example, where an applicant’s lack of care has caused or contributed to their loss. Further, even where a claim falls squarely within the scope of the scheme, the application process can be complicated and drawn out, often involving the likes of handwriting experts or other proof of forgery.

Though you can apply to the court in circumstances where agreement cannot be reached about your entitlement under the scheme, or the amount of compensation payable, this is also likely to be complex and protracted, as well as potentially costly. As such, the mere existence of an indemnity scheme is no reason to remain complacent about the potential risk of property fraud.

If you are concerned about the risk of fraud, or believe you may have fallen victim to property fraud either now or in the recent past, you should seek specialist legal advice to try to minimise any loss. You should also contact the Land Registry Fraud Line by calling 0300 006 7030.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.