IHT Return Failings Mean Jail

It is not always appreciated, but HM Revenue and Customs (HMRC) will not hesitate to bring criminal proceedings when tax evasion is significant, as the jailing of a woman who under-declared the Inheritance Tax (IHT) due on her mother's estate demonstrates.

When the woman completed the IHT return, she declared the value of her late mother's taxable estate to be approximately £285,000, well under the IHT threshold applying in the year of her mother's death (and now) of £325,000.

She may have thought that no one would find out, as the estate was probated without any issues seeming to arise.

However, the woman had received substantial cash gifts within the seven years prior to her mother's death, which should have been included in the taxable estate on the IHT returns. The correct value of the taxable estate for IHT purposes exceeded £1.5 million and the IHT liability on the estate was £500,000.

She was found out when HMRC discovered that she had been supporting a friend financially and using her friend's bank accounts to hide money.

Pleading guilty to cheating the Exchequer, she was ordered to be jailed for 32 months. The HMRC announcement does not mention the level of tax-geared fines which apply, but these will inevitably run well into six figures.

In practice, there are a number of ways such evasion can be detected by HMRC. They operate a tax evasion hotline, they can cross-check values of properties sold against the relevant IHT returns, they can use information gleaned from one tax enquiry to start another and they are sometimes able to ascertain that the way a person lives is not commensurate with his or her disclosed financial means.