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One in four grieving families face HMRC inheritance tax probe

Joanna Faith
Written By:
Joanna Faith

HMRC opened investigations into nearly a quarter of all estates that paid inheritance tax last year, new figures reveal.

The tax authorities investigated 5,537 estates suspected of underpaying IHT in 2018/19, up from 5,354 the previous year, and 5,138 in 2016/17, according to figures obtained from a Freedom of Information request by wealth management firm Quilter.

Fines for underpaid IHT can range from 50 per cent to 100 per cent of the undeclared tax.

Around 22,000 estates were liable for IHT in 2018/19, meaning one in four were probed by HMRC.

Quilter said this highlights the complexity of the UK’s IHT system, which was complicated further with the introduction of Residence Nil Rate Band (RNRB) in April 2017.

The new band provides an extra £350,000 worth of IHT-free allowance for a married couple or civil partners. (For more on the RNRB click here).

Gordon Andrews, tax and financial planning expert at Quilter, said: “Inheritance tax is infamous for being not only disliked, but complex and at times deeply unfair. On top of everything, there is almost a one in four chance HMRC will investigate your estate.

“Over the past number of years politicians have been keen to show they are cracking down on tax-dodgers and IHT is one of the departments that HMRC has been throwing its resources at.”

However, he added most people are not deliberately trying to defraud HMRC.

He said: “Given the current complexity of the IHT system it’s really no surprise if things go awry.”

How to avoid an HMRC investigation

Andrews said getting financial advice is key to mitigating the chances of an investigation.

He also suggests it’s important to get the right executor because the onus is on them if there is an investigation.

If you are asked to be an executor of the will, he said you need to understand the responsibilities that come with it as it can be an involved and time-consuming process.