HM Revenue & Customs (HMRC) investigated 3,574 inheritance tax (IHT) cases in the 2020-21 financial year, according to law firm Pinsent Masons.
The total revenue from IHT for the last financial year was around £6bn ($8.2bn, €7bn), but due to the complexity involved with inheritance, the law firm said that there is “increasing scope for disputes” between taxpayers and HMRC.
The IHT investigations brought in £254m to the taxman.
As people are increasingly choosing to take legal matters in their own hands when it comes to IHT, there is a significantly higher degree of mistakes that could be made, forcing HMRC to open an investigation.
Additionally, Pinsent Masons said that growing property values meant that a greater number of people are becoming liable for IHT.
This is largely due the nil-rate band – the threshold above which tax must be paid – remaining the same at £325,000 since 2009 “without any adjustments to account for inflation”, the firm said.
Red flags
Pinsent Masons said there are several criteria which will prompt HMRC to investigate a deceased’s person estate.
These include:
- If an estate happens to “conveniently” fall below the nil-rate band;
- Valuable assets not being disclosed as part of the probate application;
- Real estate appearing to be “significantly undervalued” when compared to similar properties;
- Taxpayers making invalid IHT relief claims, including asking for a refund for the wrong sum or not being eligible for relief at all; and,
- Gifts made by the deceased within the seven-year period before death, as they become liable for IHT.
Sophie Warren, tax manager at Pinsent Masons, said: “These numbers show that in spite of the pandemic, HMRC has not shied away from launching investigations into those it believes have underpaid IHT and HMRC will continue to scrutinise a person’s estate where a red flag is raised.
“Anyone who knows or suspects they may have underpaid IHT should not wait to be contacted by HMRC. The Revenue will look favourably on those who come forward and is likely to have a lower penalty levied as a result.”
A spokesperson for HMRC told International Adviser: “The majority of people pay the correct IHT. Investigations are opened into the small proportion of cases where compliance issues have been detected to ensure that everyone pays their fair share of tax.
“The number of enquiry cases and amount of tax we bring in each year changes as cases are opened and closed, and any tax owed is paid.”
