Inheritance Tax Late Penalties Rise 35% as HMRC Fines Hit 5,200 Estates

Inheritance tax late penalties issued by HMRC rose 35% over the five years to 2024-25, with fines landing on the executors of 5,200 estates — up from 3,850 — as more families attempt to navigate one of Britain’s most complex tax forms without professional help, according to figures obtained under Freedom of Information by TWM Solicitors.

The total penalty bill for 2024-25 reached £3.1m, an average of £596 per case, according to The Telegraph, which corroborated the Freedom of Information data. Penalties begin at £100 for a late filing and escalate to up to £3,000 if the return remains outstanding after 12 months.

Why Inheritance Tax Late Penalties Are Climbing

The IHT threshold has been frozen since 2009. Under current rules, estates worth more than £325,000 are charged at 40%, a rate that drops to an effective threshold of £500,000 where a residential property passes to children or grandchildren, according to the BBC. With average house prices having risen sharply over the intervening fifteen years, many modest estates now breach the nil-rate band on the value of the property alone.

Duncan Mitchell-Innes, partner and deputy head of private client at TWM, said the penalty rise reflects families taking on the process themselves without appreciating what it involves. ‘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.

Under GOV.UK guidance, the IHT400 return must be submitted within 12 months of the date of death and before probate can be applied for. That deadline is fixed regardless of how complicated the estate turns out to be.

The 122-Question Form and What Families Miss

The IHT400 runs to 122 questions and can require more than 30 supplementary schedules depending on the composition of the estate. Asset valuations are a particular sticking point: residential property must be professionally valued rather than estimated, and shares are subject to their own technical valuation methodology for IHT purposes. Banks frequently provide account information only by post, which adds weeks to the process of gathering supporting evidence.

One procedural change worth noting: the Society of Trust and Estate Practitioners (STEP) confirmed that, as of 17 January 2024, executors applying for probate in England and Wales no longer need to submit a separate IHT421 probate summary alongside the IHT400. The change reduces one step, but the core return remains as involved as before.

Reliefs are a further area where self-represented families lose ground. Gifts made more than seven years before death, or made regularly out of surplus income, may be entirely exempt from IHT, but families must identify and document them. ‘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,’ said Mitchell-Innes.

April 2027 and the Pension Complication

The volume of inheritance tax late penalties is expected to grow further from 6 April 2027, when unused pension funds and pension death benefits will be brought into the valuation of a deceased’s estate for IHT purposes. The change was announced by Chancellor Rachel Reeves in the 2024 Autumn Budget, according to Legal & General. Death benefits paid to a surviving spouse, civil partner, or registered charity are excluded from the new rules.

Rachael Griffin, at wealth manager Quilter, said delays were ‘inevitable’ as the estate base widens. ‘As more modest estates are caught, there is a greater tendency to try and handle returns without advice. There is a clear risk [that the number of penalties] intensifies from April. Pension death benefits will move more squarely into the inheritance tax regime, expanding both the number of estates in scope and the complexity of administering them,’ she said.

For personal representatives who already find the IHT400 difficult to complete within the 12-month deadline, adding pension asset valuations and the accompanying paperwork into the mix is the clearest forward pressure on that penalty count. The £596 average fine today will be the floor, not the ceiling, once the pension rules take effect.