Late IHT penalties surge 35% as families struggle with complex returns

The number of penalties issued by HMRC for filing Inheritance Tax (IHT) returns late increased 35% to 5,200 over the last five years*, up from 3,850, according to TWM Solicitors, a leading private wealth and family law firm.

Duncan Mitchell-Innes, Partner and Deputy Head of Private Client at TWM, says the increase is being driven in part by more families attempting to complete IHT returns themselves, underestimating the complexity involved.

The basic IHT400 form alone has 122 questions, often requiring detailed financial and historical information. In many cases, this must be supplemented by additional schedules – of which there are more than 30 – depending on the nature of the estate.

Duncan Mitchell-Innes comments: “People often underestimate the complexity of the UK’s IHT rules. What seems like a straightforward task can quickly become time-consuming and technically challenging, particularly when HMRC requires extensive supporting evidence. This can lead to penalties if deadlines are missed.”

One of the most time-consuming parts of an IHT return relates to the valuation of assets. Many assets, such as residential property, need to be valued professionally. In addition, some assets, such as shares, have specific valuation bases that must be used for IHT purposes. Getting these valuations completed on the correct technical bases can be time consuming without prior technical knowledge.

Many families with modest estates have been drawn into paying IHT in recent years, largely because the IHT threshold has remained frozen since 2009. Even an average house can now trigger an IHT bill on its own.

Delays can also arise where executors struggle to identify all the relevant details needed for the IHT400. This can include tracing all bank accounts, investments and historical gifts, sometimes going back many years. Many banks only provide this information by post.

Additionally, Mitchell-Innes said that it can be hard for people handling their own IHT return to identify all the relevant technical reliefs and exemptions that may appy, together with gathering the evidence to support them. For example, gifts made out of surplus income or more than seven years before death may be exempt, but finding evidence to support that exemption can be time consuming.

Some families handling their own return even lose out on reliefs and exemptions available to them simply because they do not know they exist.

Duncan Mitchell-Innes says: “Reliefs aren’t applied automatically. People must actively claim reliefs and exemptions and find the evidence to support them where needed, which can be time-consuming. Without proper advice, families risk penalties and leaving valuable reliefs unclaimed.”

Penalties are likely to increase further as unused pension pots will be brought into the IHT net from April 2027, leading to more families having to submit a return.

Fines for late filing rapidly increase from an initial £100 to up to £3,000 after 12 months.

* Data for tax year 2024/25. Source: FOI response from HMRC