Around a quarter of estates that pay inheritance tax (IHT) are being investigated by HM Revenue & Customs, highlighting the complexity of the system, according to Quilter.
A freedom of information request by the financial planning firm revealed more than 5,000 IHT investigations are opened by HMRC each year.
In 2018/19, around 22,000 estates were liable for IHT.
The number of IHT investigations has grown by around 7.8% following the introduction of the Residence Nil Rate Band (RNRB) in April 2017.
Gordon Andrews, tax and financial planning expert at Quilter, said given the current complexity of the IHT system it 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 argued.
Andrew stated that 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,” he added.