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Taxation: Inheritance Tax

Volume 705: debated on Monday 17 November 2008

asked Her Majesty’s Government:

What plans they have to review the inheritance tax liability of executors responsible for winding up estates which include properties that are currently unsaleable.

My Lords, the Government already have in place arrangements to meet this eventuality. While a house remains unsold, the inheritance tax due on it can be paid in instalments for up to 10 years. Where a house is sold within four years of the death for less than the value on which inheritance tax was paid, the personal representatives can in most cases make a claim for inheritance tax “loss on sale” relief.

My Lords, I thank the Minister for that reply, but that is a long-standing arrangement. I am asking for more help given the present circumstances. Does he agree that it is a vicious cycle that you cannot sell your asset until you have the grant of probate, but you cannot get the probate until the inheritance tax is paid, so you may well need to borrow in order to pay the inheritance tax and to get the probate? Then, when you are heavily in debt, you may be unable to sell but are paying heavy interest on a valuation which, according to all the top accountants, is being assessed at a price which reflects those at the top of the market and does not allow for the current drop in values. In some cases, people who lived in homes with their parents are being forced to sell those homes, or be badly in debt. What happens if it reaches the point where you have paid out so much in interest and borrowing that even if you get that money back after the four-year period, it does not cover all the interest you have had to pay to whoever lends you the money, if you can borrow it?

My Lords, the present arrangements are reasonable. The individuals concerned can delay the payment of inheritance tax. I appreciate the point that the noble Baroness makes about falling house values, but the Inland Revenue is not in the business of dispossessing people of the houses they have inherited in which they are still living. The Inland Revenue, of course, adjusts its values to the level at which houses are sold. It is for the personal representative to make the case that the price the house has achieved is below the valuation price on which inheritance tax was charged, and to claim a refund.

My Lords, one of the difficulties is getting valuations agreed with the Valuation Office in a falling market. This year the Valuation Office Agency has a key performance indicator of increasing its inheritance tax yield of 5 per cent—5 per cent per unit of cost, 5 per cent per person. Does the Minister agree that that KPI is making it more difficult for executors to agree realistic values with the Valuation Office and that the KPI should be suspended for the rest of this year?

My Lords, the Valuation Office, like any other government department, is expected to give value for money—they all fall under the same rubric. However, it works within very clear rules as regards charging inheritance tax: first, as I indicated, the Inland Revenue is not in the business of dispossessing householders of the houses that they have inherited; secondly, inheritance tax can be deferred; and, thirdly, the current rate at which inheritance tax is paid, if deferred, is 3 per cent. I do not think that any of those propositions is unreasonable.

My Lords, is it actually true that property is being valued for probate at a higher level than today’s market value?

My Lords, I cannot comment on individual cases, but the Valuation Office operates on the information that it has before it. Of course, there will be a downward adjustment because, as everyone in the country is all too well aware, property values are dropping. Therefore, if the property is sold at a lower valuation than the tax levied on it, there is, as I say, a proper claim for rebate.

My Lords, the Minister said that HM Revenue and Customs is not in the business of dispossessing people. Does he find an interesting contrast with Northern Rock, which is adopting the most aggressive stance of any bank in the country in dispossessing people who get into difficulties paying their mortgage? Could he suggest that the considerate people in HM Revenue and Customs who are not dispossessing people have a word with the people in Northern Rock and tell them to be more generous-spirited?

My Lords, the noble Lord is adroit in picking up some interesting cross-references but he will recognise that the process we have in place for inheritance tax—which, I emphasise, involves only the 4 per cent of estates in this country that are above the level requiring tax to be paid—consists of arrangements that are fair and proper. Northern Rock, as the noble Lord will be aware, was set up to run its business as a commercial operation. The Government made it absolutely clear that while the bank is in temporary public ownership, we will not be involved in day-to-day commercial decisions about how it operates.

My Lords, will the noble Lord address the question of executors’ inability to obtain probate until inheritance tax is paid? Is what the noble Baroness, Lady Gardner, said correct: will it take 10 years for some people to get probate?

No, my Lords. That issue concerns the time taken for inheritance tax to be agreed and levied. The payment period can be as long as 10 years, as I have indicated. I have also indicated that the interest rate paid on the outstanding amount owed is 3 per cent. I find it difficult to conceive how anyone could suggest that such arrangements are unreasonable.