The recent slump in property prices and stagnant property market is not just bad news for homeowners and investors but is also bad news for those who are about inherit property as the slump in property prices could leave them with higher than expected tax bills. It is often forgotten that the value of the property for inheritance tax purposes is taken at the date of death and not the date of sale and that the probate value must accurately reflect at the market value at that date. Whilst in the last few years of rapidly accelerating property prices this has actually worked in the favour of estates the reverse is true in times where property values are falling. To make matters worse the inheritance tax due on an estate has to be paid within six months of death.

The obvious answer in normal times would be to just sell the house. However in today’s property market things are not that simple, house prices are continuing to fall and worse still properties are just not moving with some estate agents seeing less than a sale a week. As the tax must be paid before the Probate Registry will issue a grant releasing equity is not an option and whilst a bridging loan or releasing equity in your own property might be possible the severe tightening of lending criteria caused by the credit crunch might make this difficult as well as expensive. This could leave you facing the possibility of taking six months to sell an asset that is losing value every week in order to settle an inheritance tax bill based on a higher valuation. Worse still you could be forced to sell the property at auction in order to meet the tax deadline.

This is why careful inheritance tax planning is important and should start as soon as you begin to acquire assets of substantial value. Proper inheritance tax planning can almost entirely mitigate your IHT liability. If however, you are unfortunate to find yourself in a position whereby inheritance tax is liable, due to the presence of a property in the estate, then there is one concession that is available to you. On certain types of assets, such as land and buildings, the HMRC will allow the IHT bill to be paid in instalments over ten years. There are two conditions however. Firstly, on death, the executor must immediately write to HMRC to inform them that you wish to exercise this option. At a stressful time, such as the death of a loved one, this can be overlooked and the usual six month rule will then be invoked. Secondly, the first instalment must be paid within the six month period or the entire amount will become due. Finally, interest is charged on outstanding balances for each year, however, if you miss a year’s payment then additional interest charges will be applied.

If you need any help with inheritance tax or further advice on any of the issues raised in this article then we offer a FREE consultation service. You can contact us on +44 (0)20 7873 2396 or via email at mail@atcsolutions.com and one of our tax partners will be pleased to help.