Inheritance tax property valuations are being tightened by HMRC

On property valuations in inheritance tax returns, thousands more estates are being contested

Here are some tips to help you stay as error-free as possible.

As more families are caught in the taxman's net due to rising home prices, HM Revenue and Customs (HMRC) is stepping up its enforcement of property valuations in inheritance tax (IHT) returns.

According to recent research by private wealth and legal firm TWM Solicitors, the number of cases that HMRC referred to the Valuation Office Agency (VOA) increased by 23.5 percent, from 11,845 in the 12 months ending in September 2024 to 14,631 in the year ending in September 2025.

Estate executors are required to include property valuations in inheritance tax returns, which HMRC then uses to calculate the appropriate estate tax amount.

Current BFIA issues. But if HMRC feels that a property has been valued incorrectly, it can refer cases to the VOA; according to TWM, HMRC is increasing its scrutiny of property valuations.

According to the solicitors, their attorneys were typically contacted "once or twice every few years" regarding homes that were valued incorrectly, but this was now occurring more frequently.

It occurs as more people are giving money to the taxman due to frozen inheritance tax thresholds and growing housing costs.

"HMRC is clearly focusing on property valuations as a significant potential source of revenue," stated Laura Walkley, head of TWM's private client team. There has been a discernible shift away from taking inheritance tax return figures at face value and toward challenging them. A "

"Most people pay the correct amount of inheritance tax," an HMRC representative stated. As has always been the case, investigations may be launched if it is believed that someone hasn't. A "

Why accurate property valuation is crucial.

Executors must accurately value a property in order for HMRC to determine the appropriate amount of inheritance tax.

According to Walkley, HMRC may request that the VOA review the valuation if the property in an estate sells for a substantially higher price than the home's value on the person's death date.

The estate is assessed additional inheritance tax on the difference between the two values if it is discovered that the date of death value was higher than the one reported on the inheritance tax return.

Additionally, six months after the end of the month of the death, HMRC will apply interest (at a rate of 7.75 percent annually) on the additional tax owed. Therefore, interest would start to accrue on August 1st of that year if the person passed away in January.

HMRC may impose a penalty in addition to interest if it determines that the executor did not exercise reasonable care in obtaining a valuation or purposefully undervalued the property to pay less inheritance tax, for example.

According to Walkley, "in general, HMRC could consider a failure by the executors to value property in accordance with established best practice as careless."

How to accurately value a property.

Walkley states that executors are deemed to have exercised reasonable care if they either have the Royal Institute of Chartered Surveyors (RICS) conduct a survey on the property or have three estate agents perform valuations and average the results.

In any event, she states that the open market value of the property on the date of death is the crucial factor in determining its value for inheritance tax purposes.

"There is a misconception that there is a probate value that is less than the open market value," she continues. The "

How you can pay less inheritance tax on property.

There are things you can do to make sure your beneficiaries pay less inheritance tax on an estate that includes property, but there isn't much you can do about rising home prices.

Give your property to a child or grandchild and give your spouse or civil partner the bands.

Inheritance tax is typically due on estates valued at £325,000 or more; however, if you are leaving your home to a child or grandchild, this amount rises by £175,000, which is known as the residence nil-rate band. In the event of your death, a partner may inherit this £175,000 allowance.

This implies that married or civil partnership couples would not be subject to inheritance tax and could leave up to £1 million to their loved ones.

Please take note that you lose one of this residence nil-rate band until it vanishes for every two times your estate is worth more than £2 million. Accordingly, a single person's estate worth £2.35 million does not qualify for a residence nil-rate band, whereas a couple's estate is worth £2.7 million.

The progressive elimination of the residence nil-rate band for estates valued at more than £2 million is "potentially storing up another tax trap for wealthy pensioners with high value properties," according to Charlene Young, senior pensions and savings expert at investment platform AJ Bell.

Sell the house.

According to Young, if you live long enough, you could theoretically sell your house and its value would end up outside of your estate because gifts of any size are exempt from inheritance tax if made seven years or more before your death.

However, you will be required to pay the new owner rent at market value if you wish to continue residing in the property.

According to Young, "under the gifts with reservation rules, the value of the property simply gets added back to your estate, regardless of how long has passed."

In a separate guide, we examine how to get money back if asset prices decline.