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Inheritance tax penalties up by a third to £2.28m

Emma Lunn
Written By:
Emma Lunn
Posted:
Updated:
27/11/2023

Inheritance tax (IHT) penalties payable by bereaved families increased by more than a third to £2.28m in 2022/3, according to figures from HMRC.

NFU Mutual used a Freedom of Information request to discover the number of people penalised for making mistakes when calculating how much IHT they owed.

It found the total value of penalties had gone up 34% in 2022/23 from the year before and increased by more than half in the past two years. The figure stood at £1.7m in 2021/22.

Families have to calculate how much IHT they owe and pay it within six months of the family member’s death – otherwise they are charged interest on any money due. But selling property after probate and sorting out a deceased person’s estate can often take a lot longer than six months.

The size of the penalty HMRC imposes on IHT miscalculations will depend on the nature of the error and whether someone deliberately set out to avoid paying tax due or simply did their sums wrong.

If the error is due to the family not taking “reasonable care”, the penalty can be up to 30% of the additional tax owed. If it’s deemed to be deliberate it can be up to 70% and if it’s “deliberate and concealed” the penalty can be up to 100% of the additional tax owed.

Complexities of IHT ‘catching people out’

Sean McCann, chartered financial planner at NFU Mutual, said: “This increase suggests the complexities of inheritance tax are catching more people out and leading to higher penalties.

“Penalties are normally issued to families who either undervalue the assets being passed down or don’t include them on the return. The rising value of property and other assets may have contributed to families underestimating values.”

Many people are not aware of the need to include gifts made by the deceased in the seven years before their death, or those where they continued to enjoy a benefit from.

“Often families don’t get professional valuations for property or other valuable assets which can mean the value is understated due to lack of ‘reasonable care’, said McCann, “If HMRC take the view that the family have intentionally provided incorrect information or not included assets on the inheritance tax return, this may be deemed ‘deliberate’.”

Taking steps to hide errors is likely to be viewed as “deliberate and concealed” and attract a larger penalty in addition to the extra tax owed. HMRC has access to a wide range of data sources, including Land Registry sales information, which allows them to cross reference against the information on the IHT return.


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