Inheritance Tax Investigations on the Rise

The 2021/22 financial year saw a hefty £326 million being recouped in IHT, which was a considerable jump from £254 million in the preceding year, The Scotsman reports. If we follow this trajectory, it’s safe to say that we’ll likely see another rise in the coming months when the 2022/23 data rolls in.

Furthermore, since 2019, over 13,000 people in the UK have found themselves under the watchful eye of Her Majesty’s Revenue and Customs (HMRC) concerning IHT investigations. This number is over and above the usual IHT bills.

Why the Increased Scrutiny?

So, why are more and more people finding themselves ensnared in the IHT web? Here’s a closer look:

  1. Rising Property Values: Even though the UK Government has pegged the IHT threshold at £325,000 in recent tax years, property values have surged. Thus, many who believed they were exempt from IHT due to not having ‘enough’ wealth are getting a rude awakening. And despite some areas reporting a drop in house prices, estate agents in certain localities confirm that prices remain stable.
  2. Mistakes in Reporting: Families often make errors when reporting the value of estates. Some of these blunders include underestimating property values, leaving out bank accounts or investments, misunderstanding IHT exemptions, or not maintaining records as per HMRC’s standards.
  3. HMRC’s Proactiveness: HMRC is becoming increasingly vigilant, questioning the figures and records submitted by families. This means any unpaid IHT is retrieved from the inheritors. Importantly, if the beneficiaries can’t pay the additional IHT due, the executors themselves are held responsible.

How Can You Safeguard Yourself?

To navigate the IHT maze, here are two straightforward steps:

  1. Seek Professional Advice: Lawyers, coupled with financial advisers, can guide you on how to make the most of various IHT exemptions. For instance, you can gift items or cash worth up to £3,000 each tax year without it being taxed.
  2. Follow HMRC Processes: Getting legal advice can assist executors in adhering to HMRC’s procedures when dividing the estate. This ensures that everything is above board and reduces the risk of unwanted scrutiny.

Remember, IHT isn’t just about assets inherited after someone’s death. It can also apply if the deceased had gifted something and passed away within seven years of doing so.

In Conclusion

Navigating Inheritance Tax can be tricky, but it’s essential to get it right. Errors can be costly and might impact the financial legacy we aim to leave our loved ones. Stay informed, seek advice, and ensure you’re not caught off guard.