HM Revenue & Customs is targeting bereaved families with a raid on inheritance tax after it clawed back a record £326m through investigations last year.
The tax authority has stepped up efforts to seize money from families who underpay their inheritance bill in a sign it is attempting to cash in on booming property prices.
The amount raised by investigators in the year to March 2022 was 28pc higher than for the previous 12 months, according to data obtained by the insurer NFU Mutual through a Freedom of Information request. It was the biggest amount recovered in publicly available records.
Both people who deliberately conceal money and those making an honest mistake are regarded as legitimate targets for investigations, which can drag on for months or years.
Experts said that inheritance tax is increasingly being targeted by a HMRC team dedicated to targeting wealthy individuals – which it defines as the 800,000 people in Britain with an income above £200,000 or assets of over £2m.
Dawn Register ,of accountancy firm BDO, said: “If they pass away, their estate is automatically subject to further scrutiny.”
The sum reclaimed in 2021-22 represented 5pc of the total £6.1bn in death duties paid last year.
The standard inheritance tax rate is 40pc, paid on the value of any estate above £325,000. Homeowners can benefit from an additional £175,00 allowance if they pass on their primary residence to a child or grandchild.
Prime Minister Rishi Sunak’s decision to freeze this threshold until 2028 means that the revenue from IHT is expected to grow over the coming years as more people are dragged into paying.
Experts warned the number of investigations would increase as the tax authority was under increasing pressure to tackle tax avoidance. Last year HMRC opened 4,258 enquiries into families who owed inheritance tax, up from 3,574 the year before, when lockdown restrictions affected its ability to carry out investigations.
Mike Warburton, a former director at the accountancy firm Grant Thornton, said the amount raised through such investigations will “almost certainly” rise over the coming years as HMRC improves its information-gathering capabilities.
Over 13,000 individuals have been subject to IHT investigations since 2019, the figures showed.
Sean McCann, of NFU Mutual, said: “More inheritance tax is being recovered from HMRC investigations due to the rising value of assets and the potential sums at stake, which justify HMRC spending more time looking at individual cases.”
HMRC will receive £79m from the Government over the next five years to recruit more staff for tackling tax compliance. A portion of this funding will go towards chasing wealthy taxpayers.
Some of the families investigated by HMRC may have knowingly avoided paying death duties. But others are likely to have fallen foul of complex IHT rules and difficulties valuing assets.
Mr Warburton said: “Property and shares are relatively straightforward but problems can arise with valuable chattels such as pictures and antiques. HMRC have wised up to that and now ask to see details of home contents insurance to spot missing items from the assets submitted.
“Another problem arises with lifetime gifts. Gifts within seven years before the death typically form part of the estate, but how do the executors know about these when the person they most want to ask has inconveniently just died? If they kept detailed records that is great, but many people do not do so.”
A large portion of the £326m claimed in 2021-22 was recovered as HMRC finally completed investigations begun in previous years, the taxman said. Families forked out £6.1bn in inheritance tax in 2021-22, up from £5.4bn in 2020-21 and £5.2bn in 2019-20.
Mr Warburton said the current thresholds are “wholly insufficient” and that more families will be dragged into the net as a result.
Inheritance tax, he added, “was intended to tax only the wealthy but the tax base has broadened significantly since then”.
A spokesman for HMRC said: “Our role is to collect the right amount of tax due under UK law. Cases are opened where we identify a risk of tax not being paid.
“We appreciate dealing with inheritance tax can be difficult and we approach all cases with sensitivity. Anyone with concerns or who needs extra support can call our inheritance tax helpline on 0300 123 1072.”