Inheritance Tax  

HMRC investigates IHT in quarter of estates

HMRC investigates IHT in quarter of estates

More than 5,000 inheritance tax (IHT) investigations are opened by HM Revenue & Customs each year, representing about quarter of estates that pay IHT.

A Freedom of Information (FOI) request by Quilter to the tax authority, published today (July 22), revealed 5,537 investigations were carried out in the last tax year, down 9 per cent on the 6,088 peak in 2013/14 but up 6 per cent on 2015/16.

Figures from HMRC published in May 2019 showed there were about 22,000 estates liable for IHT in 2018/19, meaning a quarter were investigated for possible breaches in that year.

Tax year

Number of IHT investigations opened













The data showed the number of IHT investigations grew by 7.8 per cent following the introduction of Residence Nil Rate Band (RNRB) in April 2017.

The RNRB is an additional threshold available where the deceased left a residence, or the sale proceeds of a residence, to their direct descendants. The RNRB for 2019/20 was £150,000, an increase of £25,000 from 2018/19.

The nil rate band, also known as the IHT threshold, is the amount up to which an estate has no IHT to pay. The NRB for 2019/20 was £325,000 and any estate which exceeds this threshold is charged 40 per cent in IHT.

Unused allowances can be transferred to a surviving spouse or civil partner.

Gordon Andrews, tax and financial planning expert at Quilter, said the IHT rules were unfair and unnecessarily complex.

Mr Andrews 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."

IHT receipts have decreased for the past two months despite an upward trajectory in the beginning of the year, according to the latest HMRC data, published Friday (July 18).

In June 2019 IHT receipts accounted for £357m, representing a drop of 9 per cent compared with the £393m raised in May and 30 per cent compared with the same month last year.

Quilter highlighted that some solicitors chose not to advise clients on the RNRB due to its complexity.

Mr Andrews said: "All the complications surrounding IHT 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."

A review of IHT rules is already underway in order to simplify the system.