Inheritance Tax Late Penalties Rise as IHT Forms Catch Families Out

Inheritance tax late penalties issued by HMRC have risen sharply over the past five years, with bereaved families struggling under the weight of a 122-question form and a frozen threshold that is dragging more modest estates into the net. The number of penalties for late filing of IHT returns climbed 35%, from 3,850 to 5,200, over the five years to the 2024/25 tax year, according to data obtained via a Freedom of Information request by TWM Solicitors.

Why Inheritance Tax Late Penalties Are Rising

The fines escalate quickly. An initial £100 charge rises to up to £3,000 after twelve months of non-compliance. According to Essendon Tax, HMRC collected £2.28 million in IHT penalty revenue in the last tax year, up from £1.7 million the year before. (That aggregator cites a 34% rise in the penalty count; the TWM Solicitors FOI data, as reported, puts the figure at 35%.)

The IHT nil-rate band has been frozen at £325,000 per person since 2009. A separate residence nil-rate band of £175,000 per person exists but only applies when a qualifying home passes to direct descendants such as children or grandchildren; nieces and nephews do not qualify, according to Ask Accountants UK. The combined effect of frozen thresholds and rising house prices means an average property can now trigger a liability on its own.

Duncan Mitchell-Innes, partner and deputy head of private client at TWM, points to a second driver: more families attempting to complete IHT returns themselves. ‘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 Forms, the Valuations and the Missed Reliefs

The core IHT400 form carries 122 questions. Beyond that, executors may need to complete more than 30 additional schedules, depending on the composition of the estate. Valuation is consistently the most time-intensive element: residential property must be professionally valued, and listed shares have specific technical valuation rules for IHT purposes. Market estimates do not suffice.

Tracing assets adds further delay. Executors must track down all bank accounts, investments and gifts, sometimes going back seven years or more. Many banks still dispatch this information by post alone.

The risk of missing reliefs compounds the compliance burden. The standard IHT rate is 40%, but estates leaving at least 10% of net value above the threshold to charity attract a reduced rate of 36%, as confirmed by the Office for Budget Responsibility. Gifts made from surplus income, or made more than seven years before death, may be fully exempt, but the evidence burden falls entirely on the executor. Separately, Croner-i notes that any person who negligently or fraudulently provides incorrect information to HMRC faces a penalty of up to £3,000, distinct from the late-filing charge.

‘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,’ Mitchell-Innes added.

Pensions in Scope From April 2027

The pressure on personal representatives is set to increase. 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 IHT purposes, under GOV.UK’s technical note on the changes. Notional pension property held in qualifying non-UK pension schemes and section 615(3) schemes will also fall in scope. Once such property vests in a beneficiary, that beneficiary becomes jointly and severally liable with the personal representatives for any IHT attributable to it.

The administrative chain will lengthen further. Under the new regime, a Pension Scheme Administrator can become directly liable to HMRC where it pays benefits in breach of a withholding notice or fails to comply with a request under the Pensions Direct Payment Scheme, according to A&O Shearman. Primary legislation is in place, but further regulations and HMRC guidance are still expected in spring and autumn 2026. HMRC has said it will provide interactive tools to support personal representatives by April 2027.

Inheritance tax late penalties have been climbing for five years under the current rules. Once pension pots are added to the calculation, the scope for compliance errors, and the financial cost of making them, will widen considerably. Families with pension-holding deceased relatives who have not yet engaged professional help should treat the spring 2026 guidance window as the practical deadline for starting that conversation.