HMRC ramp up inheritance tax investigations
HMRC have increased their investigations into inheritance tax (IHT) as they look to squeeze more from compliance activities in this area. 5,400* families were investigated by HMRC over their inheritance tax returns last year, up 5% from 5,100 in 2016/17.
Research has revealed that 24%** of the total estates liable for inheritance tax were investigated by HMRC over a 12-month period. So that’s a one-in-four chance of being investigated by HMRC.
Rising asset prices, such as residential property, in recent years has meant the amount of inheritance tax at stake in each HMRC investigation has increased. This has acted as an incentive for HMRC to be more active in their investigations in this area.
If an investigation finds that inheritance tax has been underpaid, the estate may have to pay all of the tax owed plus a penalty, which could be up to 100% of the tax at stake.
With the potential to be hit with such large penalties, families need to be careful when valuing assets to make sure they pay the correct amount of inheritance tax. HMRC are likely to investigate three main areas when examining an IHT return:
- Whether the figures submitted correctly reflect the market value for assets
- Whether claims for business or agricultural reliefs are valid
- Whether assets have been omitted deliberately or due to a lack of reasonable care
Estates need to take special care when valuing residential properties as HMRC, in some cases, add additional value to properties due to the potential for refurbishment, development or attached land. This can lead to the miscalculation of an estate’s value, which leaves taxpayers exposed to considerable penalties.
Inheritance tax investigations are not only costly and time-consuming but also come at the worst time for many families. Taking care when filing a return is therefore paramount.
Investigations can be costly, disruptive and stressful. You can protect yourself against the cost of most tax investigations by subscribing to Larking Gowen’s Tax Enquiry Protection Service. To find out more, call 0330 024 0888 or email firstname.lastname@example.org.
* HMRC 2018
** Land Registry, June 2018
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