Murray Beith Murray LLP is a leading Scottish private client law firm.
For 175 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.
Murray Beith Murray LLP is a leading Scottish private client law firm.
For 175 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.
It has recently been reported through a release from HM Revenue & Customs (HMRC) on 23 April 2024 that UK taxpayers paid £7.5 billion in Inheritance Tax (IHT) from April 2023 to March 2024, being an increase of £0.4 billion from the same period last year.
IHT is a vital revenue source for the UK Government and, arguably, this is no better shown than by recent reporting that HMRC opened in excess of 2,000 investigations into unpaid and underpaid IHT between April and November 2023. The reporting surrounding this has stated that these investigations lead to a further £172 million in IHT being recovered.
HMRC will, wherever possible, work to ensure that all estates subject to IHT are properly reported. These investigations are likely to focus on assets which have been undervalued, or undeclared altogether, leading to estates having a lesser value upon which IHT may be charged.
When HMRC receive an IHT return, they may check and compare it against other information sources that they hold on record. Should any anomalies in value arise, it is possible that an investigation may be instructed. These investigations will possibly review the value of any property or land making up part of an individual’s estate, with a view to ascertaining whether this value has been correctly assessed. Dependent upon the circumstances, these investigations may also include a second assessment of the value of other assets, such as investments.
Another aspect which is likely to be firmly on HMRC’s radar is gifting. Under IHT rules, a gift made seven years before an individual dies will generally fall “out of account” and no longer be subject to IHT. However, if you continue to benefit from the property gifted, these exemptions may not apply. Common examples of this are when someone gifts their home to a younger family member but continues to live in the property without paying a market value rent or when someone gifts a high value asset, for example a painting, but it physically remains in their own home.
If HMRC are sceptical about the assessments which have been carried out, they may decide to investigate the matter further to uncover unpaid or underpaid IHT. If they think it is appropriate, they may challenge an underdeclared, or wholly undeclared, asset and seek recovery of the unpaid IHT.
If proven correct, HMRC will then recover the unpaid IHT and may charge interest on the sum due. Additional penalties may also be charged dependent upon the lateness of payment and amount due.
Executors are responsible for providing the information required for an IHT return and, should HMRC investigate the return, an executor needs to be confident in justifying their original position.
Whilst HMRC’s initial enquiries are usually expected by post, they may seek a meeting with the executors of an estate if they continue suspect that further IHT is due.
Generally, IHT applies to someone’s estate if the net value exceeds £325,000. IHT may then become chargeable at a rate of 40% on the excess value. Particularly due to rising property values and the fact that there has been no increase on the figure of £325,000 since 2009/10, this is seeing increasing numbers of estates becoming liable for IHT.
It is important to note that this is a general note, however, and there are various additional allowances and exemptions that can apply in certain circumstances. You can find out more about this in our article on making sure your estate is tax efficient.
Effective and considered estate and tax planning may enable you to reduce your IHT bill. Dependent upon your circumstances, leaving part or all of your estate to a spouse or civil partner or to a charity can prove effective. The use of trust structures and considered gifting to both charities and/or loved ones may also enable you to mitigate your exposure to IHT.
If you wish to legally reduce your estate’s exposure to IHT, effective estate and tax planning is essential.
Kathryn Johnston is an Associate in Murray Beith Murray LLP’s Asset Protection Group and specialises in IHT and estate planning.
If this article has raised any questions or you would like to discuss your affairs, then please complete our contact form or call us on 0131 225 1200.
Murray Beith Murray LLP was established in 1849, as advisors for generations of clients, committed to our values of integrity, expertise and trust. This aim and these values continue to this day, as does our commitment to be here when you need us.
