A recent freedom of information request has revealed that an increasing number of Inheritance Tax (IHT) investigations are being opened by HMRC. Currently, 1 in 4 estates come under investigation primarily due to a lack of knowledge on the tax as individuals are not always aware of its complexity.

HMRC has a wealth of third party information which has been obtained from banks, the land registry and the deceased’s previous tax returns to check against the submitted accounts. As a result of this, if anything looks to be incorrect on an IHT declaration, an investigation may be opened.

At this point it would be beneficial for the estate, along with their adviser if applicable, to consider specialist help to assist with the investigation and act as the intermediary between the estate and HMRC, to ensure that their rights are protected and no unjust tax or penalties become chargeable.

Further considerations... 

As well as an IHT investigation into the estate, HMRC can also check the deceased’s personal tax affairs and issue assessments if necessary. The time limit for HMRC to do this is within 4 years of the end of the tax year in which the taxpayer died. They can investigate up to a maximum of 6 tax years prior to death.

HMRC may also look to investigate any beneficiaries who have not declared income that has arisen after inheriting assets or investments from the deceased.

A voluntary disclosure can be made if the estate realises it has under-declared before an investigation begins, which would help to reduce tax-geared penalties down from the maximum 100% of undeclared taxes. If an agreement cannot be reached the dispute could end in a Tax Tribunal hearing.

How can Qubic help?

All of the above scenarios may require a tax investigations specialist. If your client’s need help with an investigation of this nature, our Tax Investigations Director, Dave Jennings, and his team are able to assist at any stage.

We have previously defended a number of IHT investigations, including those involving technical issues (such as gifts of reservation) and criminal prosecution. The team can be flexible either working alongside you or taking full responsibility depending on the most appropriate way to respond to HMRC.

Posted: 30th Aug 2019

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