HMRC has substantial investigation powers if it suspects inheritance tax has been underpaid through error, omission or by undervaluing assets.
HMRC investigations manage to ‘catch out’ 1,200 families in crackdown
Inheritance tax investigations have managed to catch out 1200 more families in a HMRC crackdown. HMRC has substantial investigation powers if it suspects inheritance tax has been underpaid through error, omission or by undervaluing assets.
The number of official probes into families’ financial affairs has jumped in the 2024/25 tax year to 3,961. This is up from just 2,807 in the previous year – a 41 per cent increase.
Sean McCann, chartered financial planner at NFU Mutual, which obtained the data through a Freedom of Information request, said: “Where there is a suspicion inheritance tax has been underpaid, HMRC has substantial investigatory powers and will check a range of sources to build a picture of the deceased individual’s financial affairs.”
READ MORE Major UK airport faces ‘shutdown’ and could be forced to ground all flights
“HMRC leaves no stone unturned in these investigations. For example, they will look at outgoings such as gifts made in the seven years before death, or premiums for life insurance policies which if not written in trust will form part of the taxable estate,” McCann said.
“If you’re taking advantage of the ‘gifts from normal expenditure’ exemption, recording your gifts, income and expenditure on the last page of the HMRC IHT403 form available on HMRC’s website allows you to record these during your lifetime Schedule IHT403,” said McCann.
“Getting it right first time reduces the chances of any potential penalties or interest payments.’’
McCann told Money Week: ‘’With pensions added into the taxable estate from April 2027, we will see many families lose part or all the residence nil rate band that allows them to pass a share of their home tax free to ‘direct descendants’ as it is eroded by £1 for every £2 over £2m.”
‘’For many, it won’t just be inheritance tax on their pension funds they need to be concerned about – by breaching the £2m threshold they may lose or some or all of their tax-free residence nil rate band, pushing up their overall tax bill.”
HMRC said: “The majority of people pay the correct amount of IHT. Investigations are opened into cases where compliance issues have been detected to ensure that everyone pays the right amount of tax.”