Inheritance tax police bring in £285m for Reeves

Each investigation nets an average £94,000 in extra tax

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Death duty investigators netted the Treasury £285m last year as Labour promised a further clamp down on tax dodgers.
HM Revenue & Customs (HMRC) raked in an extra £31m from taxpayers it suspected of underpaying inheritance tax in 2023-24 compared to the previous year, a 14pc rise, according to official data revealed in a Freedom of Information request.
Despite the higher revenue, the number of investigations opened by HMRC has fallen from a five-year high of 5,658 in 2019-20 to 3,028 last year. 
It means the average amount of extra tax collected from each investigation rose to £94,273 in 2023-24, up from £79,315 in 2022-23.
Rachel Reeves has vowed to crack down on tax dodgers, and close tax loopholes that allow people to shelter their assets. 
In her Budget last month, the Chancellor handed HMRC £1.4bn to hire 5,000 additional compliance staff over the next five years.
The Chancellor also widened the scope of inheritance tax to include private pension wealth and farmers’ estates, a move the Government expects to raise £2bn a year.
However, experts have warned that the death duty raid risked prompting a wave of tax evasion and avoidance.
Neela Chauhan, of accountancy firm UHY Hacker Young, said: “Taxpayers really resent paying tax on their inheritance – so many try to avoid paying it. 
“But with inheritance tax being such a major earner for HM Treasury, there’s a strong incentive for HMRC to keep challenging inheritance tax submissions that it’s suspicious of.
“HMRC’s focus on inheritance tax is yielding a greater compliance take from fewer investigations – a clear sign that their efforts to clamp down on tax evasion are working.
“The Government’s decision to dramatically increase the range of assets and estates hit by inheritance tax in the Budget could spur a new wave of evasion and avoidance of this tax – creating far more investigations for HMRC.”
It comes as HMRC doubled the amount it paid to informants making tip-offs about suspected tax evasion. 
The taxman shelled out £978,256 to people who provided “actionable intelligence” on tax fraud in 2023-24, up from £508,500 the previous year, according to data obtained from a separate Freedom of Information request. The amount paid out in 2023-24 is the highest in at least seven years.
Tax crime prosecutions hit a three-year high of 300 in the year to September, up 19pc from 252 in the same period last year.
The number of new tax investigations opened by HMRC during the third quarter of 2024 was 93,000, the highest figure registered in a quarter for three and a half years. The number of new investigations has averaged 78,000 per quarter for the last three years.
HMRC will open an inheritance tax investigation when it believes an incorrect tax return has been submitted.
It is the job of the executor to calculate the value of the estate as well as determining whether inheritance tax is payable and submitting the relevant inheritance tax forms to HMRC.
If they fail to pay the tax within six months of the death, then interest is charged on the late payment. This is 2.5 percentage points above the Bank of England base rate, meaning a total of 7.25pc today.
Executors also face penalties for submitting inaccurate information – of up to 100pc of the tax due.
The average inquiry will last for 558 days, during which time the executors are blocked from distributing the estate to the beneficiaries.
The burden of proof will be on the executor to demonstrate they followed the rules, and an inquiry will generally start with HMRC asking for written evidence. But this could then escalate to a house visit from the tax office. 
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