Increase in Inheritance Tax Penalties

Inheritance tax penalties in the UK have seen a significant increase in recent years, according to official data obtained by NFU Mutual through a freedom of information request to HMRC. Penalties are levied on families who fail to adhere to inheritance tax rules, such as late filing of forms and payments, undervaluing assets, or hiding assets subject to inheritance tax.

The amount families paid in penalties has increased by over half, reaching £2.28 million last year, up from £1.46 million two years ago. With rising property values and frozen thresholds, more families now find themselves subject to inheritance tax, leading to an increase in fines. In this summary, we will explore the common pitfalls that can result in penalties and discuss the potential amount of penalties families may face.

The inheritance tax rate in the UK is set at 40% on the portion of assets exceeding the thresholds. Only the top 4% of the wealthiest families pay this tax, but due to rising property values and thresholds remaining unchanged for many years, an increasing number of taxpayers are breaching these thresholds. This has contributed to a rise in the amount of penalties paid.

The latest data from HMRC reveals that inheritance tax receipts for the period of April to July were £2.6 billion, an increase of £200 million compared to the same period last year. The Office for Budget Responsibility predicts that the UK Treasury will raise £8.4 billion annually from inheritance tax by 2027/8. There have been reports suggesting that the Conservative Party is considering including a pledge to abolish inheritance tax in their manifesto for the next general election.

NFU Mutual highlights that more families are getting caught in the inheritance tax net and facing increased tax payments and penalties. The complexity of the rules is causing a greater number of individuals to make mistakes. According to Sean McCann, a chartered financial planner at NFU Mutual, penalties are typically issued when families undervalue assets or fail to include them in the inheritance tax return.

There are several common pitfalls that families should be aware of to avoid penalties. One potential pitfall is underestimating the value of property and other assets. Many families may be unaware of the requirement to include gifts made in the seven years preceding a death or when the deceased continued to benefit from the gift beyond that timeframe. Another common mistake is not obtaining professional valuations for valuable assets, which can result in underestimating their value due to a lack of “reasonable care”.

McCann warns that deliberately providing incorrect information or intentionally omitting assets on the inheritance tax return can result in more severe penalties. Concealing errors or attempting to hide them can lead to additional penalties on top of the extra tax owed. The level of the penalty imposed depends on the reason for the underpayment. If the error is due to a lack of reasonable care, the penalty can be up to 30% of the additional tax owed. If it is deemed deliberate, the penalty can reach up to 70%. If a deliberate and concealed attempt is made to underpay inheritance tax, the penalty can be up to 100% of the additional tax owed. HMRC has access to various data sources, including Land Registry sales information, which allows them to cross-reference the information provided on the inheritance tax return.

In addition to penalties for underpayment, there are also penalties for late delivery of an inheritance tax return and payment. The time limits for filing an inheritance tax return are important to avoid additional fines. Penalties for late inheritance tax accounts start at £100.


The increase in inheritance tax penalties in the UK is a result of more families falling foul of the rules, particularly as frozen thresholds and rising property values subject a greater number of individuals to inheritance tax. Families can face fines for late forms and payments, as well as for undervaluing or hiding assets. The complexity of the rules has led to an increase in penalties, as more people make errors in declaring their assets. Consequently, the amount families paid in penalties rose by over half in the past two years.

It is crucial for families to be aware of the common pitfalls to avoid penalties, such as underestimating asset values or omitting gifts made within the seven years prior to death. Deliberate attempts to hide errors or provide incorrect information can result in larger penalties. HMRC has access to various data sources to verify the information provided on inheritance tax returns. Additionally, families need to be mindful of the time limits for filing inheritance tax returns, as late delivery can also result in penalties.