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The Death Estate - Whether To Engage A Solicitor

Chris Stedman
Senior Partner
November 15, 2021
    

Here are a few interesting facts about the consequences of understating the true worth of a death estate for the purposes of calculating inheritance tax (IHT).

More and more people charged with this responsibility (PR’s – short for personal representatives) are deciding to deal with a deceased estate without professional support. Often they are family members and often they have an interest in the estate. So they choose to deal with the legal issues themselves and arrive at a satisfactory result. In goes the IHT return and wisely they wait for HMRC to give clearance.

The HMRC examiner will be looking for red flags. These include:

          > The value of an estate is pitched at a figure just below the               £325,000 threshold.

          > There is an omission or undervalue of assets of significant worth              in the probate application.

          > Real estate has the appearance of being significantly              undervalued.

          > There are invalid claims for IHT reliefs e.g., business property              relief on assets that do not qualify.

          > Gifts have been made by the deceased which fall within the               seven-year period before death, making them liable for inclusion               in the death estate calculation.

It only needs one red flag to be raised to ensure that an examiner will be looking at the whole picture with renewed scrutiny. HMRC will not hold back from opening an investigation where it believes the IHT liability has been understated.

What does HMRC get out of it? On average each investigation generates a yield of £71,000. In the year to 31 March 2021 HMRC opened 3,574 investigations into IHT and netted an additional £254 million in revenue. Clearly this is a profitable area for HMRC – one that they will certainly pursue in coming years.

It makes good sense for a solicitor or other professional to be instructed to apply for probate and deal with the HMRC forms. After all this is their job, this is what they have been trained for and this is what they do everyday. The PRs can do all the legwork (obtaining full details of the estate with supporting documentation), eventually administering it in accordance with the Will. Solicitors will quote for their work and their fees will be a charge on the estate. In addition to their normal duties, they will settle any issues before HMRC are involved, ensure that the IHT application can be cleared smoothly, tie up all the loose ends and be available to assist with any unforeseen issues.

 

C&H Stedman are available to discuss these and any related matters.

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