Aggressive tax inspectors are turning the screw on grieving families by challenging claims for inheritance tax reliefs, say financial experts.
The tax take for HM Revenue & Customs has soared by 14.6% this year even though new rules allow families to pass on more of the value of their homes tax-free.
Since the Residence Nil Rate Band (RNRB) was introduced in April, IHT receipts have leapt by £472 million in 12 months.
Sean McCann, chartered financial planner at NFU Mutual, said: “It’s clear that the taxman is cracking down hard on inheritance tax by looking more closely at people’s estates and challenging their claims for tax reliefs.
“You’d expect the introduction of the Residence Nil Rate Band would see receipts flatten out or even fall a little bit, but the opposite is happening.
Extra tax scrutiny
“When inheritance tax receipts rise, it’s usually because of a buoyant housing market. But property prices aren’t rocketing in the same way as the tax take, so it’s difficult to see what could have caused such a sharp increase in receipts other than a more aggressive approach to inheritance tax from HMRC.
“The extra scrutiny from tax officials means those who have not taken professional advice or planned early could be caught out with an unexpected bill. This could have a catastrophic effect on family wealth.
“IHT is one of the more complex taxes and there are plenty of traps to fall foul of – as many families appear be finding out.”
HMRC has collected £3.7 billion from estates since April 2017.
New IHT allowance
The RNRB allows parents to pass a family home on to children – by 2020, the relief will be worth £375,000 and takes the tax-free IHT nil-rate band to £1 million.
HMRC publishes some basic rules for claiming the new RNRB online but will not give tax planning advice.
The relief is phased in over the next three years – increasing from the current £100,000 to £175,000 each year until 2020-21.
Once the allowance is fully in place, the RNRB will increase in line with inflation each year.
HMRC also offers a free calculator for working out how much of the RNRB an estate can claim.
