Inheritance Tax Late Filing Penalties Rise 35% as HMRC Targets Bereaved Families

HMRC issued 5,200 inheritance tax late filing penalties in 2024/25, up 35% from 3,850 five years earlier, according to data obtained via a Freedom of Information request by TWM Solicitors and reported by The Telegraph. Those penalties totalled £3.1m in the same tax year.

The fines are not trivial. An initial £100 charge escalates to up to £3,000 if a return remains outstanding after 12 months. For families already managing grief and probate administration, the cost of missing a deadline compounds quickly.

Why Inheritance Tax Late Filing Is Getting Harder to Navigate

The rise in penalties reflects two pressures running in parallel. First, the frozen nil rate band (NRB) has steadily pulled more estates into IHT territory. The standard NRB stands at £325,000 per person, with a separate residence nil rate band (RNRB) of £175,000 per person where a qualifying home passes to direct descendants, according to Ask Accountants UK. The NRB has been frozen since April 2009. One aggregator source places the current freeze end date at 2030; another at April 2031. Both figures come from secondary sources rather than a primary government document, but either way the freeze extends well into the next parliament, per Sterling and Law.

With house prices having risen substantially over that period, even a modestly valued estate can now breach the threshold without any complex asset structure. More families are filing IHT returns who have never done so before and who have no prior experience of the process.

Second, many of those families are attempting the paperwork unassisted. Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, attributes part of the penalty increase directly to this: ‘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.’

A 122-Question Form, and More Schedules on Top

The IHT400, HMRC’s main inheritance tax return, contains 122 questions. That alone demands detailed financial and historical information. In many estates it must be supplemented by one or more of over 30 additional schedules, depending on the composition of the estate.

Asset valuation is among the most time-consuming elements. Residential property must be valued professionally; a market estimate does not meet HMRC’s requirements. Listed shares carry their own prescribed valuation methodology for IHT purposes. Executors also frequently need to trace historical gifts, sometimes reaching back several years under the seven-year rule, and many banks still only supply account information by post.

Reliefs compound the difficulty. Gifts made out of surplus income, or made more than seven years before death, may be exempt from IHT, but gathering the evidence to support the claim takes time. Mitchell-Innes is direct on the risk of proceeding without advice: ‘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.’

Pension Pots Enter the Scope from April 2027

The pipeline of IHT returns is set to widen sharply. Unused pension funds and pension death benefits will be brought into the IHT net from 6 April 2027. The government estimates that around 213,000 estates held inheritable pension wealth in 2027 to 2028, of which around 10,500, or roughly 1.5% of total UK deaths, will become newly liable for IHT as a result of the change, according to David Gray LLP.

Under the framework published by HM Revenue and Customs on GOV.UK, personal representatives, rather than pension scheme administrators, will be responsible for reporting and paying any IHT due on unused pension funds and death benefits. They will also direct scheme administrators to withhold relevant benefits and remit the tax owed. The administrative load falls squarely on executors who may already be managing a complex estate.

Death benefits paid to a surviving spouse, civil partner, or a registered charity fall outside the scope of the 2027 changes, according to Legal and General, though the firm notes that view is based on its understanding of the consultation and draft regulations rather than finalised legislation.

The combination of a broader IHT net, a structurally demanding return process, and personal representatives newly responsible for pension tax reporting sets up a further increase in late-filing penalties from 2027 onwards. The question for executors, and their advisers, is whether they have identified all the assets, all the reliefs, and all the deadlines before HMRC does it for them.