- Underpayment of IHT expected to soar as government aims to raise extra £2bn through IHT increases
HMRC believes up to £325m in IHT has been underpaid by wealthy taxpayers in the last year (year-end March 31), says UHY Hacker Young, the national accountancy group.
UHY Hacker Young says this figure, known as ‘tax under consideration’* could increase significantly in future years following IHT increases from April 2026.
UHY Hacker Young Partner Neela Chauhan says that sharp increase in taxes is often followed by an increase in tax avoidance and tax evasion as people try to blunt the impact of that tax rise.
IHT is known to be an unpopular tax and its status as an unpopular tax can act as an encouragement to some to reduce the amount of IHT payable on an estate.
Chancellor Rachel Reeve’s decision to set a £1m cap on agriculture and business property relief and to cut tax breaks on AIM shares by 50% in the Autumn Budget will add substantially to IHT bills. Pension wealth passed on to beneficiaries will also be subject to IHT from April 2027.
Neela Chauhan says: “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 31 March 2024, HMRC brought in an extra £285m in tax from investigations into the underpayment of IHT – 14% up on £254m collected from IHT-focused tax investigations in the previous year.
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by exaggerating the state of disrepair or basing the value on an out-of-date survey - Failing to declare in an IHT form cash or other valuables such as jewellery or paintings passed on to relatives, for example by a lay executor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
HMRC is increasingly investigating suspected under valuations of properties for IHT purposes by cross referencing data from HM Land Registry and using tools such as Google Street View.
HMRC 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 a IHT return.
*The maximum potential tax owed by taxpayers before HMRC completes its investigations.
