HMRC crackdown on underpayment of tax by individuals

HM Revenue & Customs (HMRC) collected £832 million in extra tax through investigations into inheritance tax, charitable donations and trusts last year. This shows how HMRC are approaching non-compliance from all possible angles and, as a result, almost all taxpayers are at risk of investigation from the taxman.

These investigations come under ‘Specialist Personal Tax’ (SPT), and include other areas of personal tax such as probate and pensions.

Inheritance tax (IHT) in particular has been a focus for HMRC. It was recently revealed that HMRC requested extra IHT from 400 estates last year, seeking a total of £44 million.

The crackdown on IHT shows taxpayers need to be especially careful to avoid making mistakes, which could lead to unexpected bills or inquiries.

Mistakes often arise when someone makes a gift but keeps some benefit for themselves – so-called ‘gifts with reservation of benefit’. For instance, this might occur when an individual gives a property to their adult children but continues to live there – hence retaining a benefit. It can be easy for taxpayers to be caught out by these rules, without realising it could incur a substantial IHT bill.

HMRC’s investigations into IHT, and other areas of SPT, are part of a much broader crackdown on the underpayment of tax by individuals.

Investigations into individuals’ self-assessment tax returns have already proved to be one of the fastest growing revenue streams for HMRC. Last year, HMRC collected an additional £1.4 billion through investigations into these returns – up from £856 million in 2015/16.

The growth in revenue generated through investigations into individuals has partly been driven by increasing threats of court action by HMRC. Many taxpayers are now settling up early with HMRC to avoid going to court.

Investigations can be costly, disruptive and stressful. Larking Gowen are inheritance tax specialists and you can protect yourself against the cost of most tax investigations by subscribing to our Tax Fee Protection Service. To find out more, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Richard Proctor