HMRC believes wealthy taxpayers underpaid inheritance tax by £325m in the last year – prompting plans for a major crackdown in 2025.
The underpayment amount could increase significantly in future years following inheritance tax increases from April 2026, according to new figures.
The figure, known as ‘tax under consideration’, was revealed by national accountancy group UHY Hacker Young and represents the maximum potential tax owed before HMRC completes its investigations.
HMRC has already demonstrated increased success in tackling inheritance tax underpayments, with investigations yielding an extra £285m in the tax year ending 31 March 2024.
This represents a 14 per cent increase from the previous year, when £254m was collected from inheritance tax-focused investigations.
The rise in recovered funds signals HMRC’s growing effectiveness in identifying and addressing tax discrepancies among wealthy estates.
The tax authority will target three main areas where wealthy families are suspected of avoiding inheritance tax payments.
One focus will be on deliberately undervalued residential properties, where owners exaggerate states of disrepair or use outdated surveys.
HMRC will also investigate cases where executors fail to declare valuable items such as jewellery or paintings passed to relatives.
The third target involves false claims about the timing of large cash gifts, particularly those claimed to be outside the seven-year inheritance tax window.
LATEST DEVELOPMENTS:
Neela Chauhan, UHY Hacker Young Partner 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.”
The accountancy firm warns that tax avoidance and evasion often increase following sharp tax rises, as people attempt to reduce their liability.
This comes as the Chancellor announced that pensions will be included in estates and subject to inheritance tax for the first time from April 2027.
Inheritance tax is charged at 40 per cent on estates worth more than £325,000, with no tax typically due below this threshold.
Those who leave their home to children or grandchildren, including adopted, foster or stepchildren, can see their threshold increase to £500,000.
Married couples and civil partners can combine their unused allowances, with the surviving partner able to add any unused threshold to their own when they die.
A HMRC spokesman noted: “Our forecasts show more than nine in ten estates won’t have IHT to pay in the coming years.”
Inheritance tax is charged at 40 per cent on estates worth more than £325,000, with no tax typically due below this threshold
PA
HMRC is enhancing its investigation methods to identify potential inheritance tax underpayments.
The tax office cross-references data from HM Land Registry and uses tools like Street View to verify property valuations.
Investigators also examine property contents insurance policies to check for valuable items that may have been omitted from inheritance tax returns.
