HMRC opened 3,600 inheritance tax probes last year

HMRC launched 3,574 investigations into inheritance tax (IHT) in the financial year 2020-21 which gave the tax authority an additional £254m in tax revenue

The law firm Pinsent Masons stated that there is an increasing number of people choosing to take care of legal issues surrounding inheritance themselves in order to save money but due to the complexity involved with inheritance, there is ‘increasing scope for disputes’ between taxpayers and HMRC.

Last week HMRC revealed that inheritance tax receipts between April and September 2021 brought in £3.1bn which was up £700m from the same time last year, the tax brought in a total of £6bn last year.

However, the 2020-21 figure is significantly lower than the investigations launched in the year 2019-20 where HMRC launched 5,638 IHT investigations but took in £274m. This was the highest figure reported in the last four years.

Responding to this figure drop the tax authority has confirmed that it only opens investigations if there is merit to do so and not to ‘reach a target’. The tax authority also stated that the Covid-19 pandemic has meant that HRMC has been taking a different approach to support taxpayers.

A spokesperson for HMRC said: ‘The majority of people pay the correct inheritance tax. 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 inquiry cases and amount of tax we bring in each year changes as cases are opened and closed, and any tax owed is paid.’

Inheritance tax has been a hot topic over the last few years as the figures brought in are rising, due to the nil-rate band freeze at £325,000 since 2009 and the Covid-19 pandemic.

Pinsent Masons say that it is important that taxpayers take sensible steps with their inheritance tax and approach a professional for guidance and support in order to avoid any mistakes.

The law firm states that there are certain ‘red flags’ which may prompt HRMC to look more closely at the case. These can include whether an estate happens to ‘conveniently fall just below the £325,000 threshold’ and if the estate appears to have been ‘significantly undervalued compared to other comparable estates’.

Inheritance tax has been rumoured to be a target in the government’s Autumn Budget, with experts stating that the Chancellor may simplify the complex rules, reduce exemptions, and potentially cut reliefs which means that the tax could be set to rise.

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