Families hit with higher inheritance tax bills after HMRC disputes property values
HM Revenue and Customs (HMRC) hit 1,500 families with higher inheritance tax bills last year after disputing the value of their properties.
The tax office challenged property valuations in 7,500 death duty cases last year, according to data revealed by The Telegraph in a Freedom of Information request.
Under inheritance tax rules, when a person dies, the executor must declare the value of the estate to HMRC. But if that property later sells for a higher price, then the tax office may open an investigation to claw back unpaid inheritance tax.
Of the 7,500 disputes, HMRC concluded that 1,500 families had underestimated the value of the property, which resulted in the tax office pursuing them for extra inheritance tax.
Ian Dyall, of wealth manager Evelyn Partners, said: 'HMRC now has a significant amount of available data at its disposal.
'If that data points towards undervaluation of an asset, or even assets omitted from the inheritance tax submissions, then they are likely to investigate.'
Mr Dyall said high-value properties in particular would be 'carefully scrutinised' by the tax office given the potential revenue at stake.
To work out whether an executor has underestimated the price of the property, HMRC will refer to the Valuation Office Agency (VOA). This government agency was recently scrapped as part of a cost-cutting drive, and will be subsumed into HMRC by April 2026.
In about half of cases last year, the VOA agreed with the valuations given by the taxpayer. But in over 3,500 cases, the VOA pushed ahead with an investigation.
This three-month process typically involves a physical inspection of the property, as well as requests for further information from the taxpayer.
Sean McCann, of the insurer NFU Mutual, said: 'The valuation office is instructed to consider any features that might make it attractive to a developer, such as a large garden or access to other land suitable for development.'
In over 1,500 cases, the VOA decided the property value was higher than the taxpayer had said.
Mr McCann said: 'Valuation of property is not an exact science. Negotiation will often occur where the executors have obtained a professional valuation which differs from HMRC's.'
If they cannot come to an agreement about the value of the property, then the dispute can be escalated to the First-tier Tribunal Hearings.
This comes amid a rise in inheritance tax investigations by HMRC. The tax office launched 3,961 investigations in the 12 months to April 2025, up 31pc on the previous tax year.
By comparison, the number of property valuations referred to the VOA has fallen in recent years, from almost 16,000 in 2021-22. However, the proportion resulting in the VOA suggesting a higher property price has increased.
For the best chance of defending an enquiry by HMRC, Mr Dyall recommended getting two independent valuations from qualified surveyors.
Inheritance tax is charged at 40pc on the value of an estate worth more than £325,000. However, homeowners can claim an extra £175,000 if they leave their main home to their children, giving couples a £1m allowance.
An HMRC spokesman said: 'The majority of people pay the correct amount of inheritance tax. In cases where it is suspected someone has not, investigations can be opened, including referrals to the Valuation Office Agency.'
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