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

Inheritance tax late penalties are rising sharply, with HMRC imposing fines on the executors of 5,200 estates in 2024/25, up from 3,850 five years earlier, a 35% increase over the period. Total penalties reached £3.1m in that year alone, averaging £596 per case, according to figures obtained through Freedom of Information requests by TWM Solicitors.

Why Inheritance Tax Late Penalties Are Rising

The increase is partly a function of more estates entering the inheritance tax net. The nil-rate band has been frozen since 2009, and house price growth means an average property can now trigger a liability on its own. More families are filing returns, and more are attempting to do so without professional help.

Rachael Griffin, from 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.’

Duncan Mitchell-Innes, partner and deputy head of private client at TWM, pointed to the same dynamic. ‘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,’ he said.

The penalty pressure is not limited to late filing. Formal IHT enquiries reached 4,171 in 2024/25, a 38% increase from 3,028 the previous year. A penalty of up to 100% of tax potentially lost can apply where an account is found to be incorrect, as set out in HMRC’s Inheritance Tax Manual.

The IHT400: A 122-Question Obstacle Course

The main form estates must complete is the IHT400, which runs to 122 questions. Filers work through boxes 1 to 28 before moving to boxes 29 to 48 to identify which supplementary schedules apply to their estate. There are more than 30 such schedules, depending on the nature and composition of the assets involved. Where there is tax to pay, an Inheritance Tax reference number must be obtained before the form can be submitted.

Asset valuation is among the most time-consuming elements. Residential property requires a professional valuation; market estimates do not satisfy HMRC. Shares are valued on a specific technical basis for IHT purposes. Executors must also trace all bank accounts, investments and historical gifts, sometimes going back seven years or more. Many banks still provide this information only by post.

The late-filing penalty schedule starts at £100 and escalates to up to £3,000 after 12 months. The statutory framework provides for additional incremental charges beyond the 12-month mark, meaning estates where filing drags on face a compounding liability on top of the underlying tax.

Reliefs Left Unclaimed, and a Bigger Problem Ahead

Mitchell-Innes said a second, quieter cost sits alongside the penalty risk: reliefs and exemptions that families simply do not claim. Gifts made from surplus income, or made more than seven years before death, can be exempt from IHT, but gathering the evidence to support those claims takes time and knowledge of what to look for.

‘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,’ he said.

The compliance burden is set to increase further. From 6 April 2027, most unused pension funds and death benefits will be brought into a person’s estate for IHT purposes. Currently, defined contribution pensions sit outside the estate entirely, with no inheritance tax payable on them. That changes in two years.

Under the new rules, Pension Scheme Administrators can become directly liable to HMRC where they pay benefits in breach of a withholding notice, according to analysis by A&O Shearman. That creates a new category of exposure for personal representatives and pension providers alike, and will pull a substantial number of previously straightforward estates into IHT return territory for the first time.

The April 2027 date is the next hard deadline to watch. Estates that include significant pension assets will face the most complex paperwork, and the gap between attempting a return unaided and incurring a penalty is likely to narrow further.