Inheritance Tax Late Penalties Surge as Families Wrestle With 122-Question Form

Inheritance tax late penalties issued by HMRC rose 35% over five years, reaching 5,200 cases in 2024/25, with total fines hitting £3.1m in that year alone, according to data released under a Freedom of Information request obtained by TWM Solicitors and reported by The Telegraph.

The figures mark a steady climb from 3,850 penalties in 2019/20. Fines scale quickly: an initial £100 rises to up to £3,000 after 12 months, meaning a family that misjudges the timeline by a year faces a bill that dwarfs the cost of professional help.

Why Inheritance Tax Late Penalties Are Rising

The core problem is complexity compounding at a moment of grief. Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, said more families are attempting to complete the forms themselves without understanding what they are taking on. ‘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 primary IHT400 form runs to 122 questions, covering detailed financial and historical information. That is before the supplementary schedules, of which there are more than 30 depending on the composition of the estate. Asset valuations add further friction: residential property must be professionally valued, and shares carry their own technical basis for IHT purposes. Neither a market estimate nor a best guess will satisfy HMRC.

Tracing assets is another common bottleneck. Bank accounts, investment holdings and historical gifts may need to be reconstructed going back many years, partly because of the seven-year rule on potentially exempt transfers. Many banks still respond to such requests only by post, slowing the process further.

Reliefs compound the difficulty. Gifts made from surplus income, or made more than seven years before death, may qualify for exemption, but the executor must find evidence, claim the relief actively and submit the supporting documentation. ‘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 said.

Frozen thresholds have drawn in more estates than ever. The Office for Budget Responsibility sets the standard IHT rate at 40% on the value of an estate above the £325,000 nil-rate band, a threshold unchanged since 2009. A reduced rate of 36% applies where at least 10% of the net taxable estate is left to charity. With average house prices in most parts of England now well above that threshold, families that would not historically have faced an IHT bill are being pulled into the system for the first time.

The 2027 Pension Changes Will Add to the Pressure

The next wave of complexity arrives in April 2027, when unused pension pots are brought within the IHT net. The GOV.UK technical note on IHT and pensions confirms that beneficiaries will become jointly and severally liable with personal representatives for any IHT attributable to pension property once it vests in their hands. Qualifying non-UK pension schemes and section 615(3) schemes will also fall within scope.

The structural reach of the reform is wider than many appreciate. Pension scheme administrators can themselves become directly liable to HMRC where they pay out benefits in breach of a withholding notice or fail to comply with a request under the Pensions Direct Payment Scheme, according to analysis by A&O Shearman. Primary legislation is now in place; further guidance from HMRC is expected in spring and autumn 2026.

Not every pension-related benefit is caught. Death-in-service payments from both discretionary and non-discretionary schemes will remain outside the IHT net under the 2027 reforms, as clarified by John Hodge Solicitors.

What Executors Can Do to Reduce the Risk

The immediate practical point is the deadline. IHT must generally be paid within six months of the end of the month in which the person died, and the return filed by the same date. Penalties begin the day after. Starting the asset-tracing and valuation process early, before the grant of probate is even applied for, is the most effective way to avoid the clock running against you.

HMRC has said it will provide interactive tools to support personal representatives ahead of the April 2027 pension changes, though those tools are yet to be released. In the meantime, any estate with a pension element, significant investment portfolio, or pattern of historical gifts over a number of years sits in the territory where a specialist probate solicitor or tax adviser will almost certainly cost less than the penalties and unclaimed reliefs that self-completion risks.

The April 2027 implementation date is the next hard test: that is the point at which the full interaction between pension administrators, beneficiaries, and personal representatives under the new liability rules becomes live, and the IHT400 workload grows again.