HMRC has recovered almost £1.39bn in unpaid inheritance tax (IHT) over the past five years, with collections in the last financial year up 14% on 2023, according to figures obtained by financial advice firm NFU Mutual.
Since 2019, HMRC has investigated the estates of almost 20,000 deceased individuals where underpayment of inheritance tax was suspected. In the 2023/24 financial year, the amount recovered following investigations increased to £285m, up from £251m the previous year. This increase comes as the total IHT collected reached a new annual high of £7.5bn.
Inheritance tax recovered following closed investigations:
- 2019/20: £273m
- 2020/21: £254m
- 2021/22: £326m
- 2022/23: £251m
- 2023/24: £285m
Total for 5-year period: £1.39bn
HMRC has substantial investigative powers to check for underpaid inheritance tax through errors, omissions, or undervalued assets. According to Sean McCann, chartered financial planner at NFU Mutual, this includes analysing bank statements for undisclosed assets, outgoings such as gifts made before death, or premiums for life insurance policies not written in trust.
McCann explains: “HMRC leaves no stone unturned in these investigations. For example, they will look at outgoings such as gifts made in the seven years before death, or premiums for life insurance policies which if not written in trust will form part of the taxable estate.
“In addition, the interest rate you pay on overdue inheritance tax stands at 7.75%, which is the highest rate for 30 years, and can add a significant amount to the bill. This can compound what for many is already a challenging and distressing situation.
“With the £325,000 nil-rate band and the £175,000 residence nil-rate band frozen until 2028, more families will be caught in the inheritance tax net with ever increasing bills for those affected.”
While the amount collected from IHT investigations is increasing, the number of new cases opened is declining, reducing by 46% compared to 2019.
Number of new enquiries opened:
- 2019/20: 5658
- 2020/21: 3574
- 2021/22: 4258
- 2022/23: 3163
- 2023/24: 3028
However, McCann suggests this doesn’t mean a change in tack from the authorities: “Investigations can take months and occasionally years to complete, and therefore the £285m recovered in 2023/24 may be from enquiries opened in earlier years. The lower number of investigations seems to suggest that they are becoming more targeted and forensic in nature.
“The revenue recovered through these investigations is significant and the rising value of assets and the potential sums at stake would appear to justify HMRC spending time looking at individual cases.
“IHT remains one of the most feared and least understood taxes, which many parties will likely seek to address in their manifestos as we head towards the General Election on 4 July.”
