HM Revenue & Customs (“HMRC”) has recently reported a 4-year high in Inheritance Tax (“IHT”) revenues after collecting an additional £274m as a direct result of more than 5,000 investigations during the 2019/20 tax year.
This amounts to an average yield of almost £50,000 per investigation, an increase of more than a fifth over the past three years. HMRC now investigates roughly one in four taxable estates.
Why are HMRC finding cause to investigate so many estates?
One reason may be the rise in seemingly cost-effective online Will writing kits together with the digitisation of tax services, encouraging more lay Executors to deal with probate by themselves.
Others maintain, as they have for some time, that the issue lies squarely with the complexities of the current IHT system leading to misunderstanding of the rules, reliefs and allowances. There is little doubt therefore that the latest figures will drive further demands for reform.
Are changes on the way?
Last year the Office of Tax Simplification published findings on a review of the IHT system with recommendations for simplification. This was followed in January 2020 by an All-Party Parliamentary Group review calling for a much more radical overhaul of the entire regime.
Although we have seen no changes so far following these reviews, these latest figures are bound to add fuel to the fire.
With tax changes anticipated to be implemented by the Treasury to cover the economic impact of COVID-19 changes to IHT may well be expected, however due to the relatively small sum IHT generates in comparison to other taxes - £5.2bn in the last tax year – this may not be top of the political agenda.
Whilst it is unclear if or when the IHT system will be reformed, these latest figures are certainly going to bring the subject to the forefront again.