IHT: thousands told they have underpaid

IHT: thousands told they have underpaid

Nearly 2,000 families have been contacted by HM Revenue & Customs (HMRC) over the last five years to be informed of their underpayment of inheritance tax (IHT).

According to the Telegraph, £608 million has been issued back to families who have not paid enough IHT. This is, in some cases, down to the rules governing “gifts with reservation of benefits”, a doctrine which does not apply to property in all cases.

On the other hand, a Freedom of Information request from NFU Mutual recently found that 32,000 claims for IHT refunds have succeeded over the past six years, with 4,200 over the last financial year.

This comes as the latest HMRC figures in April showed that IHT receipts for April 2021 to March 2022 are £6.1 billion, which is £0.7 billion higher than in the same period a year earlier. HMRC stated that higher receipts are owing to higher volumes of wealth transfers that took place during the pandemic.

Andrew Tully, technical director at Canada Life, commented on the receipts rise:

“Figures show IHT receipts between April 2021 and March 2022 were up by £700m to £6.1bn, a 13% increase compared to the previous year. This will partly be driven by the ongoing increase in house prices, as residential property makes up the largest share of most estates. There have also been a higher volume of wealth transfers due to Covid – partly due to more deaths in the elderly population, but also as some people make outright gifts to help family during this difficult period.

Both the nil rate band and residence nil rate band are frozen until at least April 2026 so we can expect to see IHT receipts continue to rise.

The Covid pandemic may mean more people are open to discussing estate planning with family. It’s crucial to get expert financial advice as there are tax efficient ways to pass wealth onto loved ones.”

Julia Rosenbloom, tax partner at Smith & Williamson, part of wealth management and professional services group Tilney Smith & Williamson, added:

“The latest reported year-on-year rise in IHT collections will be welcomed by the Treasury that needs every pound it can get at the moment to pay for the government’s ambitious spending commitments against a backdrop of ongoing global uncertainty.”

Jamie Lennox