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One in four estates facing IHT investigations

More than 5,000 IHT investigations were launched by HMRC in the 2018/19 tax year, representing nearly 25% of the 22,000 estates liable for inheritance tax over the period. This equated to 5,537 investigations, up from 5,354 the previous year.

The number of IHT investigations has grown by around 7.8% following the introduction of the residence nil rate band (RNRB) in April 2017, according to a freedom of information request by wealth management adviser Quilter.

IHT receipts totalled £5.2bn in 2017-18, an increase of 8% (£388m), compared with 2016-17 with wealthier estates contributing nearly half of total IHT revenue. In that particular tax year, only 4.2% of all UK deaths were subject to IHT. The 2018-19 IHT figures have not been released as yet. The latest figures show that an estimated £1.3bn in inheritance tax is open to investigation, with HMRC reviewing compliance issues and potential tax avoidance.

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.”

He added: “More often than not, people aren’t deliberately trying to defraud HMRC and given the current complexity of the IHT system it’s really no surprise if things go awry. For example, under the current rules, if a pension transfer is made while someone is in ill-health then there is a risk that HMRC will challenge the IHT-free status of the death benefits if the person passes away within two years of the transfer.

“All the complications surrounding inheritance tax means getting financial advice is crucial to mitigate the chances of an investigation. It’s also vital to choose the right executor because the onus is on them if there is an investigation.

“Equally, if you are asked to be an executor of the will you need to understand the responsibilities that come with it. This is not just another piece of admin, it can be an involved and time-consuming process.”

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