Inheritance Tax Investigations by HMRC: The Rise and Risks

With growing property prices and no increase to the Inheritance Tax threshold since 2009, it is unsurprising that a rise in estates exceeding the nil-rate band for Inheritance Tax (IHT) has been observed, which is currently set at £325,000 for each individual. There is no prospect for this to change in the immediate future, following the announcement by the Chancellor within the Autumn Statement 2022, that the threshold is to remain frozen at £325,000 until 2028.

HM Revenue & Customs reported that the total annual receipts for the tax year 2021-22 came to £715.5 billion, seeing an increase of 22.5% from that of the previous year. When reviewing IHT receipts alone for the same period, a 14% (£729 million) increase has occurred, the highest annual increase since 2014-15. Figures provided show IHT Investigations carried out by the HMRC produced a staggering £326 million between 2021-22.

Though the reason for the increase is believed, in part, to be linked to the Covid-19 pandemic, it is evident that the rising value in assets and the stagnant nil-rate band are the other key attributes, attributes that are not projected to change.  

With the success and profitability of IHT investigations it provides HMRC with the basis to allocate more resources, making it reasonable to assume that we will continue to see an increase. This is further confirmed in the figures reported that 4,258 IHT investigations occurred in 2021-22, a rise from the 3,574 in 2020-21.

IHT investigations occur when HMRC suspect that there has been a mistake made on Inheritance Tax returns. An example being, if in a two-year period of probate, a property is sold and the sale price of the property is considerably higher than the probate value, an investigation may be opened as HMRC monitor property values closely.

Mistakes made with Inheritance Tax are easily done as it is highly complex and requires accuracy, it is therefore essential to get the right legal support to avoid these costly errors. It is never too soon to begin planning.

Some best practices and recommendations to reduce the chance of IHT investigations are.

  • Ensuring all bank accounts, shares etc are declared.
  • Understand the exemptions that are potentially available to you.
  • Ensuring accurate records are kept of all finances and any gifts made. (Minimum of 7 years’ worth of records are recommended)
  • Having a Will that is clear, up to date and accurate; 1 in 4 wills during a study by the Legal Services Board failed their official assessment.
  • Have any high value chattels (tangible, moveable property like artwork and jewellery) professionally valued, do not guess and provide an estimated figure.

Kirsty Sharp, Jordans Solicitors LLP

February 24, 2023

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This guide is provided for information purposes only. We have done our best to ensure that the information contained in this guide is correct as of 03.02.2023. It applies only to England and Wales. However, the guide has no legal force, and the information may become inaccurate over time, due to changes in the law. Information within this guide may be over-simplified and the information contained within it does not constitute legal advice and we will not be liable should you rely on this information. Before you take any action, you should always seek legal advice from a professional with an in-date practicing certificate.