Inheritance tax penalties for bereaved families have surged 35 per cent in five years, with HM Revenue and Customs issuing 5,200 fines in the last financial year alone. The latest data, obtained by TWM Solicitors through a Freedom of Information request, reveals that these penalties generated £3.1 million in revenue for HMRC in 2024-25 – an average of £596 per estate. Over the five-year period from 2020-21 to 2024-25, a total of £13 million in fines was levied on some 24,000 families. Penalties start at £100 and escalate rapidly, reaching up to £3,000 after 12 months.
The sharp increase is being driven in large part by the creeping expansion of inheritance tax liability itself. The nil rate band – the tax-free allowance on an estate – has been frozen at £325,000 since 2009. If it had kept pace with inflation it would now stand at approximately £525,000. Similarly, the residence nil rate band, intended to reduce tax on homes passed to direct descendants, has been frozen at £175,000 since 2020 and would be worth around £210,000 with indexation. This fiscal drag means even modest estates – an average house in many parts of the country – now trigger an IHT bill, forcing far more families to submit a return.
The complexity of inheritance tax forms
The core problem, however, lies not just in who must pay but in how they pay. The main form, the IHT400, runs to 14–20 pages and contains 122 questions. It demands detailed financial and historical information, and in many cases must be supplemented by additional schedules – there are more than 30 of them – covering everything from property to shares to foreign assets. According to tax professionals, completing the IHT400 can take between six and twenty hours, even for straightforward estates. Executors must provide the correct valuations at the date of death: market estimates are not accepted for assets such as residential property, which require professional appraisals, and shares have their own specific valuation methods under HMRC rules.
The difficulties multiply when executors must trace all bank accounts, investments and historical gifts. Gifts made more than seven years before death may be exempt from IHT, but gathering the evidence to prove this is time-consuming and, as several banks still provide account information only by post, can cause significant delays. “People often underestimate the complexity of the UK’s IHT rules,” said Duncan Mitchell-Innes, a partner and deputy head of private client at TWM Solicitors. “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.”
A further trap awaits those who try to handle the return themselves. Reliefs and exemptions – including the annual gift allowance, small gifts exemption, gifts from surplus income, and potentially exempt transfers – are not applied automatically. Executors must actively claim them and produce the necessary evidence. “Without proper advice, families risk penalties and leaving valuable reliefs unclaimed,” Mitchell-Innes warned.
Rachael Griffin, a tax and estate planning expert at wealth manager Quilter, noted that the trend toward DIY filing is accelerating precisely because lower-value estates are being caught. “As more modest estates are caught, there is a greater tendency to try and handle returns without advice,” she said. That leads to “predictable friction” and delays, pushing more families into penalty territory. HMRC itself appears to be tightening its scrutiny. The number of IHT investigations rose to almost 4,000 in the last tax year, recovering an additional £246 million. The tax authority is increasingly using data‑matching technology and artificial intelligence to detect underreported or misvalued estates, making HMRC enquiries more technical and harder for unassisted executors to navigate.
Future changes set to add pressure
The scale of the problem is likely to grow significantly from April 2027, when most unused pension pots and death benefits will be brought into the value of an estate for IHT purposes. The government estimates this will bring around 10,500 additional estates into the tax net in 2027-28 alone. Personal representatives will have to calculate IHT on pension assets, raising the risk of further late-filing penalties. Pensions left to a surviving spouse or civil partner will still benefit from the spousal exemption, but those passed to other beneficiaries will face a 40 per cent charge. In a further complication, beneficiaries could suffer double taxation if they also pay income tax on the same funds when withdrawing them. Death‑in‑service lump sums are excluded from the new rules but remain a separate technical area.
Even before the pension changes, two important relief reforms take effect from April 2026. Agricultural Property Relief and Business Property Relief – which have long allowed up to 100 per cent tax relief on qualifying farms and businesses – will be capped at £2.5 million of combined property per individual. Any value above that threshold will attract only 50 per cent relief. Shares listed on the Alternative Investment Market, which previously qualified for full relief, will also be restricted to 50 per cent. These changes will force many estate planners to revisit their arrangements and may generate further errors on returns as families struggle to understand the new limits.
The combination of frozen thresholds, ever‑more complicated forms, rising HMRC enforcement and an expanded tax base is placing unprecedented demands on the personal representatives left to sort out a loved one’s financial affairs. Griffin warned there is a “clear risk” that the number of penalties “intensifies from April” as pension death benefits move into the IHT regime. For families already grieving, the burden of mastering a dense technical document, tracking down decades of financial records and correctly claiming reliefs can prove too much – and the price of getting it wrong is steep and rising.
