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HMRC investigates 1 in 4 IHT estates

28 July 2019

One in four estates that pay inheritance tax are investigated by HM Revenue & Customs, new data has revealed.

Over 5,000 inheritance tax investigations are opened each year, according to a freedom of information request from wealth management group Quilter. The number of investigations has grown 7.8% since the introduction of the Residence Nil Rate Band in April 2017, which Quilter said has made the already complex system “even harder to navigate.”

The figures show that there were around 22,000 estates liable for IHT in the 2018/19 tax year, with as many as 5,537 investigations opened by HM Revenue & Customs. This was an increase on the 5,354 investigations recorded in 2017/18.

Gordon Andrews, tax and financial planning expert, Quilter, said: ““Inheritance tax is infamous for being not only disliked, but complex and at times deeply unfair. On top of everything, there is almost a one in four chance HMRC will investigate your estate. Over the past number of years politicians have been keen to show they are cracking down on tax-dodgers and IHT is one of the departments that HMRC has been throwing its resources at.”

Andrews said that more often than not, people are not deliberately setting out to the defraud the tax office but given the complexity of the system, it was not surprising “if things go awry”.

He commented: “Under the current rules, if a pension transfer is made while someone is in ill-health then there is a risk that HMRC will challenge the IHT-free status of the death benefits if the person passes away within two years of the transfer. This is absurd at the best and perverse at worst as it is essentially penalising people for appropriate tax planning.”

According to Andrews, it is vital people choose the right executor because the onus is on them if there is an investigation. Equally, executors of the will need to understand the responsibilities that come with the role.

“This is not just another piece of admin, it can be an involved and time-consuming process,” he added.

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