Over 5,000 inheritance tax (IHT) investigations are opened by Her Majesty’s Revenue & Customs (HMRC) each year, accounting for nearly 25 per cent of all estates that were liable for the tax in 2018/19, a freedom of information (FOI) request found.

The FOI request, submitted by Quilter, highlighted the number of IHT investigations have grown by around 7.8 per cent following the introduction of the Residence Nil Rate Band (RNRB) in April 2017.

This allowance has made the already complex system even harder to navigate, Quilter argued, emphasising that the recent Office of Tax Simplification report indicated that some solicitors actively choose not to advise clients on the allowance due its intricacy.

Since the introduction of the RNRB, the number of IHT investigations opened has increased year-on-year, with 5,138 opened in 2016/17, 5,354 in 2017/18 and 5,537 in 2018/19.

Commenting, Quilter tax and financial planning expert Gordon Andrews 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.

Andrews acknowledged that “more often than not” people are not attempting to defraud HMRC. However, given the current complexity of the tax, it “really is 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,” he claimed.

“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.”

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