There were 5,100 investigations into inheritance tax by HMRC in 2016-2017. That figure rose 5% in 2017-2018 according to UHY Hacker Young and as reported by Accountancy Age.
The biggest reasons behind the rise in the number of investigations were caused by the following factors, according to International Advisor:
- When residential property is bequeathed, does the value of the property as reported to the taxman reflect what is could be sold for at open market?
- The omission of any assets caused deliberately or by lack of “reasonable care”
- The validity of any claims for agricultural or business relief
What is inheritance tax?
Inheritance tax is payable when the estate of someone who has died has a higher value than the amount that can be passed on tax free (this is the inheritance tax allowance which currently stands at £325,000 with additional thresholds for the transfer of family property). Inheritance tax is not payable on any transfer between spouses or civil partners.
It is, as all accountants will tell you and by its nature, a very complicated tax. We've written extensively about it before – click here for our summary and for the top 10 exceptions to inheritance tax that most people don't know exist.
Sunny Accountants is the leading Nottinghamshire accountancy practice helping clients to protect their estates from the full effects of inheritance tax. Please see our contact details below for more.
What are the penalties for getting inheritance tax submissions wrong?
In addition to paying the tax owed, HMRC is permitted to impose a fine up to an additional 100% of the value of unpaid tax.
Why has there been a rise in the number of investigations?
According the UHY Hacker Young's report, 24,000 estates qualify for inheritance tax every year. This number climbs every year because the value of residential property rises at the same time as the threshold has remained stuck at £325,000 for a number of years now.
Speaking to Accountancy Age, firm partner Mark Giddens stated that inheritance tax investigations are becoming “considerably more lucrative for raking in extra tax” and because the taxman knows that there is “a temptation to undervalue…as it is typically the largest figure on the return”.
In many cases, the firm found that the declared value of residential property did not reflect the fact that “additional value should be attributed to properties that have potential for refurbishment, or development or any attached land”.
Investigations into the nature of businesses being bequeathed are also on the increase. “Business relief” of either 50% or 100% of the value of a business or its assets can be written off when calculating the value of someone's estate.
Full relief can be claimed on a qualifying trading business or shares in an unlisted company (like a standard private limited liability company). You can find out more about the types of business-related asset which attracts 50% relief and those assets which do not qualify by reading this guide from HMRC. More information about agricultural relief is available here.
Get help from Sunny Accountants' Karl Watts, inheritance tax expert.
To get help from leading inheritance tax expert, Karl Watts, and his team at Sunny Accountants, please call us on 01623 559 362 or email [email protected].
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