HMRC penalties for late inheritance tax returns have increased 35% over the past five years, rising from 3,850 to 5,200 in the year to 2024/25, according to data obtained by TWM Solicitors and reported by MoneyWeek. The surge reflects a growing number of families being pulled into the inheritance tax system and struggling with lengthy, technically demanding paperwork.

The inheritance tax threshold has been frozen since 2009. As a result, many families with modest estates, sometimes including just an average-value home, now face an inheritance tax bill.

Fines for filing late start at £100 but can climb to £3,000 after 12 months.

Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, said the rise in penalties is partly driven by more families attempting to complete returns themselves without appreciating the difficulty involved.

“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,” he said.

The main inheritance tax form, the IHT400, contains 122 questions. It often requires detailed financial and historical information. In many cases, families must also complete additional schedules. There are more than 30 of these, depending on the nature of the estate.

Valuing assets is one of the most time-consuming parts of the process. Residential property, for example, must be professionally valued. Market estimates are not accepted. Shares have their own specific valuation rules for inheritance tax purposes.

Executors may also face delays tracing bank accounts, investments, and historical gifts. The seven-year rule means some gift records stretch back years, and many banks still provide information only by post.

For anyone currently administering an estate, the practical message is straightforward. The IHT400 is a substantial document with tight deadlines, and gathering the required evidence takes longer than most people expect. Starting early and understanding which reliefs might apply can help avoid unnecessary penalties.

Mitchell-Innes warned that reliefs and exemptions are not applied automatically. Families must actively claim them and provide supporting evidence. “Without proper advice, families risk penalties and leaving valuable reliefs unclaimed,” he said.

The number of late-filing penalties is expected to rise further after April 2027, when unused pension pots will fall within the inheritance tax net. This change will require more families to submit returns and increase the paperwork burden on those administering estates.