More than 2,000 families are being investigated by HMRC this tax year for not paying enough inheritance tax.
The taxman is expecting to increase its IHT take by £500 million in 2023-24 clawing back the hundreds of millions of pounds that has been underpaid.
Majority of the amount recovered will be the result of investigations opened months or years before.
In 2022-23, over 3,100 investigations were opened with £251million recovered by HMRC over the period.
As is stands, inheritance tax is charged at 40 percent on estates which exceed the “nil rate” allowance of £325,000.
This threshold is raised to £500,000 if the main home is left to a direct descendant with anything left to a spouse or civil partner being exempt from the levy.
Sean McCann, a chartered financial planner at NFU Mutual, reminded taxpayers of the “substantial powers” the Government has to carry out this crackdown.
He explained: “HMRC has substantial investigation powers if it suspects inheritance tax has been underpaid through error, omission or by undervaluing assets.
“It will check other information sources to build up a picture of the deceased and their financial affairs — including bank statements or looking at income which may suggest the existence of undisclosed assets such as investments, property or significant foreign currency transactions.”
Thanks to various gift allowances, individuals can give some of their money away each year without any tax being due even if they die within seven years.
Outside of these allowances, any gifts could be taxed if one dies within seven years of making them (assuming their estate is liable). Tax on these gifts is calculated on a sliding scale based on how long you live after making each gift.
In practice, most gifts don’t become taxable, because the £325,000 inheritance tax allowance is allocated to gifts one made within seven years of their death before it’s used against the rest of their estate.
If they give something away but still benefit from it, it will still count towards the value of their estate – for example, if they give away their home but continue to live in it rent-free until their death.
The taxman clawed back £172million over the period in underpaid death levies with more money being generated thanks to rising house prices and frozen tax allowances.
By the end of the financial year, it’s expected that the total amount collected will eclipse last year’s record of £7.1billion.
Only around four percent of deaths in the UK (27,000 estates) resulted in an inheritance tax (IHT) bill in 2020-21, but frozen thresholds and rising house prices are set to drag more people into the net.
By 2028-29 the Office for Budget Responsibility expects some 43,600 estates, or 6.27 percent of deaths, will be liable.