In a stark reminder that HM Revenue & Customs (HMRC) is tightening its grip on inheritance tax (IHT) returns, new data shows that formal enquiries have reached their highest level in six years. The UK's tax authority launched 4,940 probes into IHT returns in the last financial year, marking an 18% rise compared to the previous 12 months and underscoring the government's determination to crack down on tax avoidance and non-compliance.
The surge in investigations is taking place against a backdrop of record-breaking inheritance tax receipts. HMRC collected £8.5 billion in IHT in the last financial year, with the nil-rate band remaining frozen at £325,000 since 2009 and rising property prices contributing to an increasing number of estates being liable for the levy.
The £6.5 billion annual windfall promised by Labour's Shadow Chancellor, Rachel Reeves, is partly dependent on HMRC's efforts to modernise its operations and recruit thousands of new compliance officers. However, this increased scrutiny has come at a cost, with only 40% of compliance checks resulting in an amendment to the tax return, down from 45% the previous year and significantly lower than the 83% amended in 2021.
Nikita Cooper, a director at chartered accountants Price Bailey, highlighted the 'significant administrative and emotional burden' these enquiries place on grieving families, even when they have complied with the rules. The data suggests that HMRC's clampdown is having an impact, but its effectiveness will be closely watched as the tax authority continues to grapple with the challenge of identifying and tackling non-compliance.
Looking ahead, the introduction of pensions within the scope of IHT in 2024 is expected to lead to further increases in enquiries, placing additional pressure on both HMRC and affected families. While this news has not yet had a direct impact on the FTSE 100, the broader economic context of increased tax revenue could influence investor sentiment regarding public finances.