HMRC Inheritance Tax Late Penalties Rise 35% as Filings Grow Complex

The number of inheritance tax late penalties issued by HMRC rose 35% over the past five years, from 3,850 to 5,200 in 2024/25, according to Freedom of Information data obtained by TWM Solicitors. In total, HMRC imposed those penalties on executors across estates amounting to £3.1m during 2024/25, an average of £596 per case.

Why Inheritance Tax Late Penalties Are Rising

Two forces are feeding the increase. First, the main IHT nil-rate band has stood at £325,000 since 6 April 2009 and, under confirmed government policy, will remain frozen until 5 April 2031. The residence nil-rate band, set at £175,000 from 6 April 2020, is separately frozen until 5 April 2030. With house prices having risen sharply over that period, an average property can now push a modest estate above the threshold on its own, drawing in families who would not previously have faced an IHT bill at all.

Second, more of those families are attempting to file without professional help. Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, said the self-filing trend is a direct driver of missed deadlines: ‘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.’

Rachael Griffin of wealth manager Quilter said delays in form-filling were ‘inevitable’ and added: ‘As more modest estates are caught, there is a greater tendency to try and handle returns without advice.’

The scale of HMRC scrutiny is also broadening beyond late-filing penalties alone. Formal IHT enquiries (a separate category from late-filing penalties) rose 38% in 2024/25, from 3,028 to 4,171 cases.

The penalty structure compounds quickly once a deadline is missed. An initial fine of £100 applies, rising to £3,000 if the return remains outstanding twelve months later. Late-payment interest accrues on top.

The 122-Question Form That Catches Families Out

The main IHT400 form runs to 122 questions, frequently requiring detailed financial and historical information. Depending on the composition of the estate, it can be supplemented by more than 30 additional schedules. Getting through those schedules demands answers on asset valuations, historical gifts and account details that many families struggle to locate under time pressure.

Valuations create a particular bottleneck. Residential property must be professionally valued; market estimates are insufficient. Shares carry specific technical valuation rules for IHT purposes. Many banks will only supply historical account information by post, which adds days or weeks to the evidence-gathering process.

Reliefs and exemptions compound the risk. Gifts made out of surplus income, or more than seven years before death, may qualify for exemption, but the evidence burden rests with the executor. Mitchell-Innes was direct on the consequence of ignorance: ‘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.’

The Pension Change That Will Add to the Burden

The next wave of complexity is already legislated. Defined contribution pensions are currently outside a person’s estate for IHT purposes, meaning no inheritance tax is due on the pot. That exemption ends for deaths on or after 6 April 2027, drawing pension wealth into the IHT calculation for the first time for most savers.

The practical consequence is more estates crossing the threshold and more personal representatives required to file. Legal analysis by A&O Shearman notes that pension scheme administrators can face direct liability to HMRC where IHT obligations are not properly handled, adding a new layer of accountability beyond the executor alone.

With the nil-rate band frozen for another six years and pension assets entering scope in 2027, the 35% rise in inheritance tax late penalties recorded over the past five years looks less like an aberration and more like a base from which the number will continue to climb. The April 2027 deadline is the next pressure point to watch.