His Majesty’s Revenue and Customs (HMRC) has said it believes £325m in inheritance tax (IHT) has been underpaid by wealthy taxpayers in the last year (year-end March 31).
UHY Hacker Young, the national accountancy group, has said this figure could increase “significantly” in future years following IHT increases from April 2026.
UHY Hacker Young Partner Neela Chauhan said that sharp increase in taxes is often followed by an increase in tax avoidance and tax evasion, as people try to blunt the impact of the rise.
Additionally, IHT is seen to be an unpopular tax that may act as an encouragement to reduce the amount of IHT payable on an estate, UHY Hacker Young said.
Chancellor Rachel Reeves’ decision to set a £1m cap on agriculture and business property relief and to cut IHT tax breaks on AIM shares by 50% in the Autumn Budget will add “substantially” to IHT bills.
Inherited pensions will also move into the scope of IHT from April 2027, which will again add to IHT bills.
UHY Hacker Young Partner Neela Chauhan said: “We are expecting that the number of disputes between taxpayers and HMRC over IHT will increase, partly because of an expected increase in IHT-focused tax investigations from HMRC.”
In the tax year ending 31 March 2024, HMRC brought in an extra £285m in tax from investigations into the underpayment of IHT, 14% up on £254m collected from IHT-focused tax investigations in the previous year.
HMRC is increasingly investigating suspected under-valuations of properties for IHT purposes by cross-referencing data from HM Land Registry and using tools such as Google Street View.
HMRC has also been reported to be using a copy of a property’s contents insurance to check for valuable items that may have been omitted from a IHT return.
UHY Hacker Young said the types of issues that HMRC will look for IHT Investigations include:
- Deliberately undervaluing a residential property that is part of an estate
by exaggerating the state of disrepair or basing the value on an out-of-date survey. - Failing to declare in an IHT form cash or other valuables such as jewellery or paintings passed on to relatives, for example by a lay executor.
- Claiming a large cash gift was given seven years ago (and therefore outside of IHT) when in fact the gift was given much more recently and therefore should be subject to IHT.
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