HM Revenue and Customs (HMRC) is cracking down on property valuations in inheritance tax (IHT) returns as rising house prices see more families dragged into the taxman’s net.
The number of cases HMRC referred to the Valuation Office Agency (VOA) rose by 23.5% from 11,845 in the 12 months to September 2024 to 14,631 in the year to September 2025, according to new research by private wealth and law firm TWM Solicitors.
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The solicitors said its lawyers would usually be contacted about incorrectly valued homes “once or twice every few years”, but this was now happening more frequently.
Why it’s important to value a property correctly
Executors need to value a property correctly so HMRC has an accurate view of how much inheritance tax should be paid.
If the property within an estate sells for significantly more than its date of death value – the value of the home on the date the person died – HMRC may ask the VOA to examine the valuation, Walkley explains.
If it is found that the date of death value was higher than the one included in the inheritance tax return, the estate is charged additional inheritance tax on the difference between the two values.
HMRC will also apply interest (of 7.75% per year) on the extra tax due from six months after the end of the month of the death. So, if the person died in January, the interest would begin accruing from 1 August that same year.
If HMRC finds the executor intentionally undervalued the property [in order to pay less inheritance tax for example], or did not take reasonable care in obtaining a valuation, it may apply a penalty in addition to the interest.
“Broadly speaking, HMRC could deem a failure by the executors to value property in accordance with established best practice as careless,” Walkley explains.
How to value a property correctly
According to Walkley, executors are considered to have taken reasonable care if they either get a survey carried out on the property by the Royal Institution of Chartered Surveyors (RICS) or have three estate agents carry out valuations and take the average of the three.
In any case, the key to valuing a property for inheritance tax purposes is that the value is the open market value of the property at the date of death, she says.
She adds: “There is a perception that there is such a thing as a ‘probate value’, which is lower than the open market value, but this is incorrect.”
How you can pay less inheritance tax on property
There’s not much you can do about rising house prices, but there are steps you can take to ensure your beneficiaries pay less inheritance tax on an estate including property.
Leave your property to a child or grandchild and transfer bands to a spouse or civil partner
Inheritance tax is usually payable on estates worth £325,000 or more but this increases by £175,000, known as the residence nil-rate band, if you are leaving your home to a child or grandchild. You can pass this £175,000 allowance to a partner if you die.
This means couples who are married or in a civil partnership could leave up to £1 million to loved ones and they wouldn’t owe any inheritance tax.
Do note, for every £2 your estate is worth more than £2 million, you lose £1 of this residence nil-rate band until it disappears. This means estates left by a single person worth £2.35 million receive no residence nil-rate band, while for couples it’s £2.7 million.
Charlene Young, senior pensions and savings expert at investment platform AJ Bell, says the gradual loss of the residence nil-rate band for estates worth more than £2 million is “potentially storing up another tax trap for wealthy pensioners with high value properties”.
Sell your home
Gifts of any size are free from inheritance tax if made seven years or more before your death, so you could, in theory, sell your home and its value would end up outside your estate if you live long enough, Young points out.
However, if you want to carry on living in the property, you will have to pay the new owner rent at market value.
“If you don’t, the value of the property simply gets added back to your estate, no matter how long has passed under the gifts with reservation rules,” Young says.
We look at how to claim money back if asset prices fall in a separate guide.
