Home Finance Inheritance tax warning as HMRC collects £1.39bn from probes in last five...

Inheritance tax warning as HMRC collects £1.39bn from probes in last five years

Britons are urged to make themselves more aware of inheritance tax rules as HMRC probes on unpaid bills are rising by millions year on year.

According to new figures obtained by financial advice firm NFU Mutual, HMRC recovered almost £1.39billion in unpaid inheritance tax (IHT) during the past five years, with collections in the last financial year up 14 percent on the year before.

Since 2019, the data shows HMRC has launched investigations into the estates of almost 20,000 (19,861) deceased individuals where underpayment of inheritance tax has been suspected.

The amount of inheritance tax recovered following investigations increased to £285million in 2023/24, up from £251million in the previous year, and comes at a time when the total amount of IHT collected reached a new annual high of £7.5billion.

When there is suspicion that inheritance tax has been underpaid due to error, omission, or undervaluing assets, HMRC has substantial investigative powers and will check various sources to build a picture of the deceased individual’s financial affairs.

According to Sean McCann, chartered financial planner at NFU Mutual, this can include analysing bank statements to identify income which may suggest the existence of undisclosed assets, such as investments or property or significant foreign currency transactions.

He explained: “HMRC leaves no stone unturned in these investigations. For example, they will look at outgoings such as gifts made in the seven years before death, or premiums for life insurance policies which if not written in trust will form part of the taxable estate.

“In addition, the interest rate you pay on overdue inheritance tax stands at 7.75 percent, which is the highest rate for 30 years, and can add a significant amount to the bill. This can compound what for many is already a challenging and distressing situation.

“With the £325,000 nil-rate band and the £175,000 residence nil-rate band frozen until 2028, more families will be caught in the inheritance tax net with ever-increasing bills for those affected.”

The figures also show that while the monies collected from IHT investigations are increasing, the number of new cases opened is declining, reducing by 46 percent compared to 2019.

However, according to Mr McCann, this doesn’t mean a change in tack from the authorities.

He said: “Investigations can take months and occasionally years to complete, and therefore the £285million recovered in 2023/24 may be from enquiries opened in earlier years.

“The lower number of investigations seems to suggest that they are becoming more targeted and forensic in nature.

“The revenue recovered through these investigations is significant and the rising value of assets and the potential sums at stake would appear to justify HMRC spending time looking at individual cases.

“IHT remains one of the most feared and least understood taxes, which many parties will likely seek to address in their manifestos as we head towards the General Election on 4 July.”


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