HMRC claws back £274million in underpaid Inheritance Tax

Investigations into unpaid Inheritance Tax (IHT) has resulted in HM Revenue & Customs (HMRC) claiming £274million from estates in the past year.

The amount represents the highest yield in four years, with the average underpayment estimated to be around £48,000 according to research carried out by law firm, Wilsons.

It is understood that in the 2019/20 tax year, HMRC investigated the finances of 5,658 estates.

Experts have warned that HMRC is likely to have focussed on estates where it is claimed that an estate’s asset values have fallen substantially, particularly in relation to property prices.

Investigators also keep a sharp eye out for any undeclared gifts made within seven years of death which would normally be taken into account when calculating the final IHT contribution required.

Where the amounts are significant and, particularly where HMRC suspects there has been a deliberate attempt made to evade paying the correct amount of tax, a criminal prosecution could result.

The importance of estate planning

Whilst the latest crackdown by HMRC illustrates that deliberate evasion will not be tolerated by the Treasury, it is important to understand that there are a number of perfectly legal ways to mitigate your IHT liability.

Estate planning is a key part of ensuring that your legacy is passed on in the most tax-efficient manner and there are exemptions and reliefs which can be used to reduce the tax burden on an estate, such as passing property to direct lineal descendants using the residence nil rate band (RNRB) or using the surviving spouse, civil partner or charity exemptions.

Additionally, there are many different tax-free allowances for making gifts, including an annual exemption of £3,000, regular gifts out of excess income and gifts up to certain limits to specified relatives.

For help and advice with matters relating to IHT, please contact us.

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