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Inheritance tax investigations and penalties

Wealth Preservation / 29 September 2020

According to HMRC only 4-5% of estates in the UK pay inheritance tax (IHT) raising £5.2bn in 2019/20.  This is down 4% from the previous tax year, dropping for the first time since 2009.  HMRC state this reduction is due to the impact of the residence nil rate band which was introduced in 2017/18.  However, the number of investigations undertaken by HMRC into IHT returns have increased by 22% and reached a 4-year high.  HMRC can ask to see records up to 20 years after IHT is paid, so it is important to get it right.

When a person dies, the personal representatives must determine the value of the estate, which includes all the assets and any gifts made within the last 7 years.  They must calculate whether inheritance tax is payable at a rate of 40% on the value above £325,000 (or in some cases £650,000), pay the tax within 6 months and submit the IHT return i.e. the forms within 12 months of the person dying.

Payment of IHT:  Missing the deadline for payment of IHT will result in interest being charged on the amount that is owed.

IHT return:  Late delivery results in an initial £100 penalty and a further £100 if the return is delivered between 6 and 12 months late.  If the failure to deliver a return continues beyond 12 months, a penalty up to a maximum of £3,000 can be imposed.

Inaccurate information:  Personal representatives must take ‘reasonable care’ to complete the return accurately.  If the information supplied is inaccurate and the inaccuracy results in tax being underpaid, HMRC may impose penalties.  These usually comprise the payment of the outstanding inheritance tax due plus a financial penalty, the level of which will depend on whether the mistake is careless, deliberate or the most serious, deliberate and concealed which can result in a penalty of 100% of the tax due.

Take care
HMRC is taking an increasing interest in IHT returns.  If you are appointed to administer an estate, make sure you ask the right questions of the right people.  To avoid the risk of penalties, a thorough investigation of a deceased’s affairs is vital, as is full disclosure.  Rushing things to keep beneficiaries happy or to get the job done quickly is more likely to lead to mistakes and could prove to be very costly.

How can Greenwoods GRM help?
If you are appointed as an executor and would like help with some or all of the administration of an estate, please get in touch.  An experienced member of our team will advise you on the process and what information is needed and when.



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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email:

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