Nearly 5,000 bereaved families were fined thousands of pounds for sending inheritance tax (IHT) forms late last year. Growing numbers of taxpayers are being stung by the levy as rocketing house prices drive up the value of estates so making them liable for what has been dubbed Britain’s most hated tax.
As a result, HMRC grabbed £7.5 billion from the estates of the dead between April 2023 and March 2024 and there are expectations this will increase sharply under changes expected in the Budget on October 30.
Experts say that handling the estate of a loved one is often difficult and the process becomes more daunting when trying to understand what, if any, inheritance should be paid.
When inheritance tax is due, an executor, or the person administering the estate, must file the IHT form to HM Revenue & Customs within 12 months of death.
During the 2023-2024 tax year, the executors of 4,865 estates were hit with penalties up to £3,000 for filing documents late, figures released under Freedom of Information rules show. This is up from 4,330 in 2022-2023 and 3,447 in 2021-2022.
The tax is typically applied to estates worth more than £325,000 with everything above this threshold subject to a 40 per cent levy. And the deadline for paying IHT is the end of the sixth month after the person’s death or interest will be charged.
Experts at TWM Solicitors said families can use ballpark valuations if the estate has not been fully valued by this date. If the levy is overpaid, they will be refunded by HMRC.
They then have a further six months to send the IHT form. In some circumstances, families may need to send one regardless of whether or not they actually need to pay IHT.
These include if the deceased gave away over £250,000 in the seven years before they died, had foreign assets worth more than £100,000 or were deemed ‘domiciled’ in the UK.
Experts blamed slow service from the probate registry and financial institutions for the delays, and said the process was too complicated for grieving relatives.
Laura Walkley, a partner at TWM solicitors, said: “Dealing with IHT can be a huge task and we’re increasingly seeing banks being uncooperative. That’s leading to huge delays and unfortunately to fines for families.”
In 2018, several financial institutions signed up to a “death notification service,” which allows families to notify organisations of a person’s death all at the same time.
Mike Hodges, a partner at tax firm Saffery, told the Telegraph: “From personal experience having acted as executor on two small estates in my own family over the last couple of years, and even as a tax professional, I know the whole process is really quite daunting.
He said: “For a lay person I would imagine it is impenetrable. The number of different HMRC forms, even in very straightforward situations, and the fact that it is a paper process don’t help.”
The issue is exacerbated by delays to probate, a legal document which means the deceased person’s belongings can be distributed to those inheriting them.
The average wait for probate fell from 14 weeks in July 2023 to an average of 9.3 weeks in the same month this year, according to the HM Courts & Tribunals Service (HMCTS).
Earlier this year, call handlers at the HMCTS, stopped picking up the phone in the afternoon in order to free up staff to help clear the backlog.
An HMRC spokesman said: “We’re committed to helping customers file and pay the tax they owe, on time. We charge penalties to encourage customers to meet their obligations, while acting as a sanction for those who don’t.”
