Inheritance Tax Late Penalties Rise 35% as Families Struggle With 122-Question Form

HMRC issued inheritance tax late penalties on the executors of 5,200 estates in 2024-25, totalling £3.1 million and averaging £596 per case, according to Freedom of Information figures obtained by TWM Solicitors. That represents a 35% increase from 3,850 cases five years earlier, and the trajectory is pointing higher before the decade is out.

Why Inheritance Tax Late Penalties Are Rising

The headline driver is familiar: the nil-rate band has been frozen at £325,000 since 2009 and will remain there until at least April 2031, according to Willday Wealth Management. An additional £175,000 nil-rate band applies where a residential property passes to children or grandchildren, but even so, an average house in many parts of England can breach the threshold on its own. More estates are crossing the line, and more families are attempting to handle the paperwork themselves.

Rachael Griffin of wealth manager Quilter told Cambridgeshire Live that delays were ‘inevitable’ and added: ‘As more modest estates are caught, there is a greater tendency to try and handle returns without advice.’ Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, made the same point: ‘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.’

The penalty structure is unforgiving. An initial £100 fine escalates to up to £3,000 if the return remains outstanding after 12 months.

The 122-Question Form and Where Families Go Wrong

The HMRC IHT400 form runs to 122 questions and applies wherever there is inheritance tax to pay, or where an estate does not qualify as an excepted estate. The form applies to deaths on or after 18 March 1986. It must be submitted within 12 months of the date of death and, where probate is required, before probate can be granted, as set out in GOV.UK guidance on valuing an estate.

The IHT400 rarely travels alone. Depending on the nature of the estate, it must be accompanied by more than 30 supplementary schedules requesting additional information. Asset valuation is one of the most time-consuming elements: residential property requires a professional valuation, not a market estimate, and certain assets such as listed shares must be valued using specific IHT methodology. Tracing bank accounts, investments and historical gifts, sometimes going back years because of the seven-year gifting rule, adds further delay, particularly since many banks communicate this information only by post.

Reliefs and exemptions compound the problem. Gifts made out of surplus income, or completed more than seven years before death, may be exempt from inheritance tax, but claiming the exemption requires documentary evidence. Families going it alone frequently miss reliefs entirely, not because the evidence is unavailable, but because they do not know the relief exists. As Mitchell-Innes put it: ‘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.’

Pensions in Scope from April 2027

The inheritance tax late penalties count is set to climb further once pension assets enter the equation. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for inheritance tax purposes, under rules detailed in the GOV.UK technical note on Inheritance Tax on pensions. Notional pension property held within qualifying non-UK pension schemes and section 615(3) schemes will also fall in scope.

The liability question carries a sting. From the point any notional pension property is vested in a beneficiary, that beneficiary becomes jointly and severally liable, alongside the personal representatives, for any inheritance tax attributable to that property. HMRC has said it will provide interactive tools to support personal representatives by April 2027, but the administrative burden on executors will increase materially. More estates will cross the IHT threshold, more IHT400 forms will need to be filed, and more families will face the choice between professional fees now and penalty risk later.

For estates that straddle the nil-rate band today, the 2027 pension changes may well be the trigger that turns a complicated process into an unavoidable one. The question is whether families start planning for that before, or after, the deadline passes.