HMRC increasingly launching Inheritance Tax investigations

New figures published in the press this week reveal that HM Revenue & Customs (HMRC) is increasingly cracking down on perceived Inheritance Tax (IHT) avoidance by targeting estates it believes have undervalued residential properties.

According to data cited in Moneywise Magazine this week, HMRC investigated approximately 5,400 estates for underpayment of IHT last year – a five per cent rise on the number of estates that were targeted in 2016/17.

The figures also reveal that almost a quarter (24 per cent) of all estates liable for IHT were investigated in 2017/18.

Commentators have pointed out that HMRC’s key area of interest will usually be querying whether residential properties due to be passed onto heirs have been accurately valued.

According to reports, HMRC has been known to argue that ‘additional value’ should be added to properties – particularly in instances where such homes have ‘refurbishment potential’ or are set in large areas of land which could benefit from further development.

In instances where the tax authority finds that IHT has ultimately been underpaid, estates are typically required to pay back all of the tax owed, as well as a penalty.

In some cases, this penalty could be up to 100 per cent of the tax at stake, it has been warned.

Commentators have said that families who are “not necessarily cash-rich” but own one or more high-value properties could be hit with hefty fines if they do not tread carefully.

In response to the concerns raised, an HMRC spokesperson simply said: “Our investigations ensure that everyone pays the right tax.”

In England and Wales, IHT is charged at a rate of 40 per cent on all estates valued above the IHT threshold or ‘nil rate band’, which has remained frozen at £325,000 for many years.

However, there are numerous ways families and individuals can mitigate their eventual IHT liability.