Dramatic rise in HMRC Inheritance Tax investigations

The sum recovered by HMRC through investigations into missing Inheritance Tax (IHT) payments rose year-on-year by almost £53 million to £326 million in 2021-22.

These figures came to light as a result of a freedom of information request by the insurance company NFU Mutual. “More inheritance tax is being recovered from HMRC investigations due to the rising value of assets and the potential sums at stake, which justify HMRC spending more time looking at individual cases,” said an NFU spokesperson.

The number of IHT investigations also rose by around 20% to 4,258 compared with the previous year. However, this was still lower than the pre-pandemic average of more than 5,000 a year.

A spokesperson for the Chartered Institute of Taxation said that in recent years there had been a rise in the number of people self-reporting the value of estates to HMRC, ie not using a solicitor or other professional advisor. That may have led to more errors, increasing the number of investigations.

Inheritance Tax toolkit

According to HMRC’s Inheritance Tax toolkit, valuations are the “biggest single area of risk” and account for a “large part” of compliance checks. In particular, HMRC highlights a number of issues concerning property valuations that are “easily overlooked”, such as the potential for land development.

It is apparent that HMRC is increasingly challenging asset and property values where there is a sale within two years of death at a higher price than the probate valuation.

Common mistakes

Among the most common errors made by self-reporters are:

• failing to declare one or more bank accounts.
• failing to include unquoted shares.
• misunderstanding the exemptions and reliefs available.

HMRC said its role is to collect the correct amount of tax due by law. “Cases are opened where we identify a risk of tax not being paid…We appreciate dealing with inheritance tax can be difficult and we approach all cases with sensitivity.”