Inheritance tax crackdown on thousands
There has been a huge rise in the number of families being investigated by HMRC for potentially underpaying inheritance tax.
The Times recently reported that HMRC opened 2,029 investigations between April and November 2023 alone.
HMRC has substantial powers to investigate an estate where it suspects inheritance tax has been underpaid due to deliberate or inadvertent omissions or errors by the Personal Representatives or assets being undervalued.
If HMRC finds that inheritance tax has been unpaid, they have powers to charge interest and impose penalties as well as demanding payment of the unpaid inheritance tax itself. This can significantly increase the overall tax bill given that interest is currently charged at a rate of 7.75%!
It is not mandatory for a Personal Representative to instruct a solicitor to assist with the administration of an estate and they may choose (especially where an estate appears to be straightforward) to administer the estate themselves.
However, even where an estate appears to be straightforward, it is easy to inadvertently overlook matters which could lead to inheritance tax being unpaid or, in some instances, not paid at all.
One of the main areas of investigation by HMRC (and something which Personal Representatives are often unaware they need to consider) is gifts made by the deceased in the seven year period before they died.
It is vital that Personal Representatives do not take steps to distribute an estate where there is any possibility of an investigation by HMRC as they will be personally liable for any shortfall if there are insufficient assets left in an estate to pay any inheritance tax due.
It is likely that the number of investigations by HMRC will continue to rise in the future due to rising house prices and frozen tax allowances. It is therefore more important than ever for Personal Representatives to obtain advice at an early stage to establish the correct inheritance tax position.
If you need advice around inheritance tax, please give our friendly team a call on 0116 212 1000 or 01858 445 480 or complete our free online Contact Us form.
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