Physical Access to Property in Intestacy Cases

If a person dies intestate, in order to avoid potential action by the HMRC and to complete inheritance tax returns accurately, does anyone need to physically access the property of the Deceased?

That is a question Finders International dealt with recently, in response to a query from a public sector client. Finders International often works with the public sector, assisting councils, coroners and other public sector services to identify and trace next of kin, verify identities and relationships of those claiming next of kin, and searching for wills and assets.

Does someone need to physically access the property of the Deceased? The short answer is yes – the administrator does need access. (Administrators are appointed to carry out the distribution of an estate when someone has died without leaving a valid will, or where there are some assets that are not disposed of by their will.)

One of the things the Administrator or Executor has to do in order to obtain the Grant is to complete an inheritance tax return (IHT205 or IHT400 – the former for small, non-taxable estates and the latter for larger, taxable estates).

To complete the return, the Personal Representative needs accurate values of all assets and liabilities. In practice, this information simply cannot be obtained without access to the property. Estate agents and surveyors have to view the property inside and out in order to prepare accurate valuations, and a thorough search of paperwork and valuables is required to establish the other assets and liabilities in the estate.

To complete an inheritance tax return without having had access to the property would be to do so ‘blind’, which is risky.

Take a simple (if unlikely) example.

The Administrator “guesses” the property value at £200,000 and assumes there is no other estate. He or she completes IHT205 on that basis. The grant is issued, and the local council allows access to property.

The administrator then finds share certificates stuffed down the back of a sofa onsite – a whopping holding of 75,000 shares in BP plc, which nobody had any idea about. The shares are worth £300,000.

Even if the administrator had guessed everything else right, he or she has undervalued the estate by £300,000. The administrator thought he or she was administering a tax-free estate, but actually the shares push the estate’s value up considerably and the estate owes £70,000 in inheritance tax.

The HMRC will not be happy, and might impose harsh penalties for the filing of incorrect information and/or the lack of effort in gathering the best possible information about the Deceased’s estate.

There are many other risk scenarios attached to failure to physically access the property.

There is always a way in cases of difficulty (inheritance tax returns filed on a ‘provisional basis’ for example) but the general position really has to be that properties should be accessed pre-grant application.