The UK financial services firm found over 5,000 inheritance tax (IHT) investigations are opened by HMRC each year.
This equates to around 25% of all estates that pay inheritance tax, as figures from HMRC show that there were around 22,000 estates liable for IHT in the 2018/19 tax year.
|Tax year||Number of IHT investigations opened|
The number of IHT investigations has grown by around 7.8% following the introduction of the residence nil rate band (RNRB) in April 2017.
This allowance made the complex system more difficult to navigate, as even the recent Office for Tax Simplification report highlighted that some solicitors choose not to advise clients on the allowance due to its intricacy.
Gordon Andrews, tax and financial planning expert at Quilter, said: “Inheritance tax is infamous for being not only disliked, but complex and at times deeply unfair. On top of everything, there is almost a one in four chance HMRC will investigate your estate.
“Over the past number of years politicians have been keen to show they are cracking down on tax-dodgers and IHT is one of the departments that HMRC has been throwing its resources at.
“More often than not people aren’t deliberately trying to defraud HMRC and, given the current complexity of the IHT system, it’s really no surprise if things go awry.
“For instance, under the current rules, if a pension transfer is made while someone is in ill-health then there is a risk that HMRC will challenge the IHT-free status of the death benefits if the person passes away within two years of the transfer.
“This is absurd at the best and perverse at worst as it is essentially penalising people for appropriate tax planning.
“All the complications surrounding inheritance tax means getting financial advice is crucial to mitigate the chances of an investigation. It’s also vital to choose the right executor because the onus is on them if there is an investigation.
“Equally, if you are asked to be an executor of the will you need to understand the responsibilities that come with it. This is not just another piece of admin, it can be an involved and time-consuming process.”