Inheritance tax enquiries surge to six-year high after crackdown

Tax authority probes into households’ inheritance tax returns have surged to a six-year excessive, after a government-led crackdown on avoidance and non-compliance.

HMRC opened a complete of 4,940 formal inheritance tax enquiries during the last monetary 12 months, in accordance with new knowledge obtained by chartered accountants Value Bailey, an 18 per cent enhance on the earlier 12 months.

The leap follows a extensively touted clampdown on tax avoidance introduced by Rachel Reeves in a bid to assist stability the books and plug gaps within the public funds.

Formal enquiries are opened when there’s a threat that an inheritance tax return could also be incomplete or inaccurate. In the course of the course of, HMRC can demand paperwork, property valuations, and explanations from the household or accountant to make sure the right amount of tax was paid. 

The contemporary knowledge follows inheritance tax receipts reaching a never-seen-before excessive of £8.5bn within the final monetary 12 months, as frozen thresholds make an ever bigger variety of estates answerable for the unpopular levy.

Nikita Cooper, director at Value Bailey, mentioned that HMRC is going through rising stress to “clamp down on non-compliance and increase the tax take”, given the growing variety of estates “being caught within the tax web” every year. 

It comes as Reeves is concentrating on an additional £6.5bn within the Treasury’s tax consumption a 12 months by the tip of Parliament via modernising HMRC and recruiting an additional 5,000 compliance caseworkers and 1,800 debt assortment officers.

‘Important administrative and emotional burden’ on grieving households 

Frozen inheritance tax thresholds, regardless of rising property costs and inflation, have led to a rising variety of affected estates topic to the inheritance tax.

HMRC threat assessors additionally referred just below 5,000 tax returns for the levy to the compliance group, the very best quantity in 5 years. Regardless of this enhance, the proportion of adjusted IHT returns continued to fall year-on-year.

Value Bailey revealed that solely 40 per cent of compliance checks referred by threat assessors led to an modification, down from 45 per cent the earlier 12 months. Each reveal stark decreases from the 83 per cent of returns amended within the 2021 monetary 12 months.

However Cooper warned regardless of the failure to raise the uptake, it nonetheless imposed a “important administrative and emotional burden” on grieving households, “who’ve already complied with the foundations”.

“That is unfair on the taxpayers who’re dealing with bereavement and are doing the proper factor by making full and correct disclosures,” Cooper mentioned.

As new modifications to the inheritance tax regime come into impact subsequent 12 months, together with pensions falling into the scope, Value Bailey forecast enquiries to additional rise.