Insights

Inheritance tax (IHT) continues to be an emotive topic - recent figures released show that it is a good source of income for the treasury, although it remains contentious.

HMRC has launched many new tax enquiries disputing inheritance tax payments in the last tax year (2021-22). These enquiries recovered an extra £326 million, increased from £254 million in 2020-21 and £273 million in 2020-19. In part, these increases are because some assets are rising in value very quickly, helped along by inflation of course. Added to this, HMRC now allocates more resources to exploring individual cases, which is also bringing in more taxes; around 20% more enquiries have been launched into IHT returns.

One other reason why more taxpayers have found themselves facing enquiries is due to the number of people opting to handle their IHT returns (and potentially the grant of probate process) themselves. Rather than use a professional advisor, some are taking a DIY approach. This can be fine in a very simple estate, but it does tend to lead to mistakes. In some cases, HMRC has challenged asset and property values following the sale of an asset at a higher value than the figure reported on the IHT forms. Other common errors people make when dealing with an estate can include failure to declare bank accounts or unquoted shares, missing off accrued interest, including assets on the wrong forms or misunderstanding the reliefs available such as:

• The nil rate band;
• The transferable nil rate band;
• The residential nil rate band;
• The transferable residential nil rate band;
• Business Property Relief (BPR);
• Agricultural property relief (APR);
• Failed PETs (gifts made within the 7 years prior to death);
• The calculation of taper relief;
• The evidence requirement for gifts out of income.

In addition to helping their clients calculate the correct tax liabilities, taking into account the potential reliefs available, tax advisors add value by ensuring that the various forms and returns are correctly completed and by providing a ‘sanity check’ that the figures being reported are unlikely to be disputed by HMRC; also that appropriate evidence exists to support any claims.

If you need help with IHT and obtaining grant of probate on a death, please get in touch via partners@rjp.co.uk.