Inheritance Tax | HMRC Investigations
Inheritance Tax liability often leads to disputes, and we have noticed a significant rise in the number of clients we represent in various tax disputes with HMRC.
Inheritance Tax is a tax on the estate such as property, money and the possessions of someone who has died. There is a standard inheritance tax rate but it is only charged on the part of the estate that exceeds the tax-free threshold. However, with careful planning and the use of available exemptions, it is possible to reduce the amount owed to HMRC.
HMRC's annual inheritance tax revenues have been rising significantly and will continue to keep increasing as long as asset values, especially property, keep climbing and the tax-free threshold remains frozen at £325,000, a level unchanged since 2009. Currently, this threshold is intended to continue until 2027-2028.
Historically regarded as a tax on the ‘super wealthy,’ thousands more families now find themselves liable for substantial inheritance tax bills. Not surprisingly, HMRC remains focused on recovering underpayments of Inheritance Tax, reporting that they recovered £326 million in the tax year ending March 2022.
Unpaid Inheritance Tax can occur for several reasons, including a lack of awareness, underestimation of the estate's value, or disputes among heirs.
When evaluating an estate's value, HMRC will be examine amongst other things, whether the asset valuations submitted are accurate and if any assets have not been disclosed, either intentionally or through lack of care.
Failure to comply with the strict requirements set for calculating and payment of the tax can result in substantial penalties being imposed.
Tim Thompson of KANGS comments generally upon Inheritance Tax.
Inheritance Tax | Calculations
Payment of Inheritance Tax, being a tax paid on the estate of a deceased person, is the responsibility of the person(s) dealing with the distribution of the deceased’s estate, whether appointed by virtue of a will or, where one does not exist, upon an intestacy.
Principle considerations
- The standard Inheritance Tax rate is, currently, 40%, charged against the value of the assets of the estate deemed taxable.
- Complex rules may vary the liability dependent upon the nature of the assets and the relationship(s) between the deceased and beneficiaries.
- A tax-free Nil Rate Band, currently amounting to of £325,000, applies and that figure must be exceeded before any liability arises. The tax is calculated on all amounts above that level.
- The Executor(s) or Administrator(s) of the estate notifies HMRC of the value of all assets and liabilities of the estate by completing and submitting a number of very detailed questionnaires tailored to cover assets and liabilities of every nature which are provided by HMRC.
- HMRC will, when considered necessary, instruct its own Teams to investigate any aspect of the disclosures, such as property valuations, to confirm their accuracy.
- Gifts made by the deceased have always attracted detailed scrutiny by HMRC and this continues to be the case as individuals endeavour to avoid/minimise tax liability by reducing the size of their estates falling liable to the tax. Liability will be subject to various considerations including the date of gift(s), the recipient(s) and nature of the gift(s).
- There may be an interaction between inheritance tax and other taxes, such as Capital Gains Taxes, especially where the sale of any business/partnership or a share of any such enterprise is involved. Business Relief allows some assets to be passed on free of Inheritance Tax or with a reduced liability.
The scope of the law regulating Inheritance Tax is enormous, covering every conceivable asset of potential value, whether situate in the UK or abroad and whether held personally by the deceased or through trusts, nominees or companies. Equally, there are technical reliefs and allowances available, where appropriate. Each estate requires experienced consideration to ensure that the correct amount of tax is calculated and paid.
How Can We Assist In Tax Investigations?
Dealing with issues arising from a deceased’s estate is often extremely stressful, arising at a time when emotions remain extremely vulnerable.
Potential liability to Inheritance Tax frequently poses technical considerations requiring skilled and experienced professional consideration. Failure to accurately disclose the value of the estate, whether deliberate or inadvertently, may result in an HMRC investigation.
Additionally, if all the assets of an estate have been distributed and HMRC later initiates an investigation that leads to a demand for unpaid taxes, the personal representatives could be held responsible for covering any resulting shortfall.
It is important to obtain experienced advice to assess the exact Inheritance Tax liability and to address any issues which may be raised by HMRC. Such advice may prove imperative in mitigating any potential liabilities and penalties.
The Team at KANGS is well versed in supporting clients involved in disputes with HMRC of every nature, including those appertaining to Inheritance Tax, and would be delighted to hear from you.
Should you become subject to any form of investigation from HMRC our team would be delighted to assist, simply contact us using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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