Under the current laws, you need to pay 40% Inheritance Tax on your “estate” – so your property, money and possessions – that you pass on after you die – but only if you are leaving more than £325,000 behind
HMRC believes wealthy taxpayers have underpaid up to £325million in Inheritance Tax (IHT), which experts warn means a crackdown is likely.
According to data analysed by the accountancy group UHY Hacker Young, the £325million figure is from last year’s tax year to March 31 and is known as “‘tax under consideration.” This is the maximum potential tax owed by taxpayers before HMRC completes its investigations.
Under the current laws, you need to pay 40% Inheritance Tax on your “estate” – so your property, money and possessions – that you pass on after you die – but only if you are leaving more than £325,000 behind. The accountancy firm warns that the underpayment of the tax could soar as the government aims to raise more from it.
The firm says the “tax under consideration” figure could increase significantly in future years following Inhertiance Tax increases from April 2026. UHY Hacker Young Partner Neela Chauhan says that a sharp increase in taxes is often followed by an increase in tax avoidance and tax evasion as people try to blunt the impact of it.
In the Autumn Budget, Chancellor Rachel Reeves announced that from April 6 2027, pensions will be included in your estate and will be subject to tax for the first time. According to government estimates, the change will raise almost £1.5billion by 2030.
Those impacted the most are set to be Brits who have estates worth over £2million. This is because the £175,000 residence nil rate band – which is the allowance for passing the family home on to direct descendants – starts to be tapered down until it disappears entirely.
UHY Hacker Young also note that Reeve’s decision to set a £1million cap on agriculture and business property relief and to cut tax breaks on AIM shares by 50% in the Autumn Budget will also add substantially to Inheritance Tax bills. Neela added:: “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.”
In the tax year ending March, 31 2024, HMRC brought in an extra £285million in tax from investigations into the underpayment of Inheritance tax – 14% up on £254million collected from Inheritance Tax-focused tax investigations in the previous year.
According to UHY Hacker Young, the types of issues that HMRC will look for IHT Investigations include:
- Deliberately undervaluing a residential property that is part of an estate by exaggerating the state of disrepair or basing the value on an out-of-date survey
- Failing to declare in an IHT form cash or other valuables such as jewellery or paintings passed on to relatives, for example by a lay executor
- Claiming a large cash gift was given seven years ago (and therefore outside of IHT) when in fact the gift was given much more recently and therefore should be subject to IHT
The accountancy group note that HMRC is increasingly investigating suspected under valuations of properties for Inheritance Tax purposes by cross referencing data from HM Land Registry and using tools such as Google Street View. The tax office has also been reported to use a copy of a property’s contents insurance to check for valuable items that may have been omitted from an Inheritance Tax return.
