Thousands more families face inheritance tax penalties – are you prepared for 122-question form?
The number of penalties for late inheritance tax returns has surged as more families are dragged into the tax net and face a battle with complex returns.
HMRC is increasingly hitting bereaved families with penalties for filing inheritance tax returns late as they struggle with long, complicated forms, according to data from a Freedom of Information request.
The number of penalties issued by HMRC for filing inheritance tax (IHT) returns late increased 35% from 3,850 to 5,200 over the last five years, data up to the tax year 2024/25 obtained by TWM Solicitors showed.
Fines for late filing rapidly increase over time, from an initial £100 to up to £3,000 after 12 months.
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Many families with modest estates have been drawn into paying IHT in recent years, largely because the IHT threshold has remained frozen since 2009. Even an average house can now trigger an IHT bill on its own.
But Duncan Mitchell-Innes, partner and deputy head of private client at TWM, said the increase in late penalties is also being driven by more families attempting to complete IHT returns themselves, without realising the complexity involved.
“People often underestimate the complexity of the UK’s IHT rules. What seems like a straightforward task can quickly become time-consuming and technically challenging, particularly when HMRC requires extensive supporting evidence. This can lead to penalties if deadlines are missed,” he said.
Complex IHT forms
The basic IHT400 form alone has 122 questions, often requiring detailed financial and historical information.
This is the main form families will need to fill in for inheritance tax purposes. But in many cases, it must be supplemented by additional schedules – requests for information – of which there are more than 30, depending on the nature of the estate.
One of the most time-consuming parts of an IHT return, according to lawyers, relates to the valuation of assets. Many assets, such as residential property, need to be valued professionally – market estimates are not enough.
In addition, some assets, such as shares, have specific ways of being valued for IHT purposes. Getting these valuations completed on the correct technical bases can be time consuming without prior technical knowledge.
Delays can also arise where executors struggle to identify all the relevant details needed for the IHT400. This can include tracing all bank accounts, investments and historical gifts, which sometimes go back many years – for instance due to the seven year rule. Many banks only provide this information by post.
Missing out on inheritance tax reliefs
Mitchell-Innes said it can be hard for people handling their loved one’s IHT return on their own to identify all the relevant technical reliefs and exemptions that may apply, together with gathering the evidence to support them.
For example, gifts made out of surplus income or more than seven years before death may be exempt, but finding evidence to support that exemption can take time.
Some families handling their own return even lose out on reliefs and exemptions available to them simply because they do not know they exist.
“Reliefs aren’t applied automatically. People must actively claim reliefs and exemptions and find the evidence to support them where needed, which can be time-consuming. Without proper advice, families risk penalties and leaving valuable reliefs unclaimed,” said Mitchell-Innes.
The number of penalties for late filing of inheritance tax returns is likely to increase further after unused pension pots are brought into the IHT net from April 2027, leading to more families having to submit a return.
The development is expected to increase the demands on personal representatives – those in charge of administering the estate left behind after a death – to get the pension IHT paperwork right, or face potential fines themselves.
