Challenging HMRC on inheritance tax: Real cases, technical Insights, and practical steps

Inheritance Tax (IHT) can be a source of real anxiety for families, not just because of the sums involved, but also due to the complexity of the rules and the power HMRC holds in assessing estates. While most estates are settled without dispute, there are occasions when families believe HMRC has made an error—perhaps by denying a relief, overvaluing a property, or misinterpreting the law. Challenging HMRC is possible, and there are real cases where families have succeeded. Here’s what you need to know if you’re considering a challenge.

Why Do People Challenge HMRC on Inheritance Tax?

The most common reasons for disputes include:

• Valuation disputes: HMRC may value property, land, or business assets higher than the family believes is fair, especially where there is development potential or unique features.

• Denial of Agricultural Property Relief (APR) or Business Property Relief (BPR): These reliefs have strict requirements around use, ownership, and occupation. Disputes often arise over whether a farmhouse is “of a character appropriate,” whether land is genuinely agricultural, or whether a business is “mainly trading.”

• Gifts with reservation of benefit: HMRC may argue that a gift was not fully given away if the deceased continued to benefit from it, keeping it within the taxable estate.

• Jointly owned assets: There can be disagreement about how joint tenancies or tenancies in common are treated, especially if there is a survivorship clause or a declaration of trust.

• Trusts and foreign assets: The treatment of trusts, foreign property, and domicile status can be highly technical and often leads to challenge.

The Process: From Review to Tribunal

1. Internal Review:
   If you disagree with HMRC’s decision (for example, after receiving a Notice of Determination or a closure notice), you can request a statutory review by a different HMRC officer. This is a formal process and must be requested within 30 days of the decision letter.
   
   

2. Appeal to the First-tier Tribunal (Tax Chamber):
   If the review does not resolve the issue, you can appeal to the First-tier Tribunal (Tax Chamber). This is an independent body that will consider evidence from both sides. You must submit a Notice of Appeal within 30 days of the review decision or the original HMRC decision if you skip the review.
   
   

3. Further Appeals:
   If you disagree with the Tribunal’s decision, you may be able to appeal to the Upper Tribunal, and in rare cases, to the Court of Appeal or Supreme Court. Each stage has strict deadlines and procedural requirements.

Key Technical Points:

• You must set out the grounds of your appeal clearly, referencing the relevant legislation (such as the Inheritance Tax Act 1984) and any supporting case law.

• Evidence is critical: this includes professional valuations, expert reports, business accounts, tenancy agreements, photographs, and witness statements.

• The Tribunal can consider both facts and law, but will expect you to have tried to resolve factual disputes (such as valuations) with HMRC first.

Key Cases and What They Show

Hanson v HMRC [2012] UKFTT 314 (TC)
The Tribunal considered whether a farmhouse was “of a character appropriate” to the land. The family provided evidence of the farm’s history, the use of the house, and its relationship to the land. The Tribunal found in favour of the family, granting APR, because the farmhouse was still at the heart of the farming business.
Lesson: Detailed evidence about the use and history of the property is vital.

HMRC v Atkinson [2008] EWCA Civ 1449
Mr Atkinson gave his house to his children but continued to live there rent-free. The Court of Appeal agreed with HMRC that this was a “gift with reservation of benefit,” so the house remained in his estate for IHT.
Lesson: If you continue to benefit from an asset after giving it away, it will still be counted for IHT.

Charnley v HMRC [2019] UKFTT 650 (TC)
The Tribunal examined whether a holiday letting business qualified for BPR. The decision turned on whether the business was mainly trading or mainly investment. The Tribunal found that the business was not sufficiently trading to qualify for BPR.
Lesson: The distinction between trading and investment is crucial for BPR. Detailed business records and evidence of services provided are essential.

Technical Guidance for Challengers

• Valuation Disputes:

  • Obtain a professional, written valuation from a chartered surveyor or RICS valuer.

  • If HMRC’s Valuation Office Agency (VOA) disagrees, you may need to commission a second opinion or negotiate directly.

  • Provide evidence of comparable sales, local market conditions, and any factors that reduce value (e.g. tenancies, restrictions, poor condition).
    
    

• APR and BPR Claims:

  • For APR, show the land is actively farmed and has been owned and occupied for the required period (2 years if occupied by the owner, 7 years if let).

  • For farmhouses, provide evidence that the house is proportionate to the land, used as the centre of operations, and not simply a residence.

  • For BPR, demonstrate that the business is mainly trading (over 50% of turnover, time, and value), not investment. Provide business accounts, service records, and details of staff and activities.
    
    

• Gifts with Reservation:

  • If you have made gifts, show that you no longer benefit from them in any way.

  • If you pay market rent to continue using a gifted asset, keep records of payments and tenancy agreements.
    
    

• Jointly Owned Assets:

  • Clarify the form of ownership (joint tenancy or tenancy in common) and provide any declarations of trust or wills that affect the asset.
    
    

• Trusts and Foreign Assets:

  • Provide trust deeds, statements of assets, and evidence of domicile or residence status.

Practical Steps and Tips

• Keep meticulous records: HMRC can ask for evidence up to 20 years after IHT is paid. Keep copies of wills, valuations, business accounts, correspondence, and any agreements.
  
  

• Engage with HMRC: Respond to all requests for information promptly and fully. If you disagree, set out your reasons in writing, referencing the law and any supporting evidence.
  
  

• Prepare for hearings: If you go to Tribunal, you may need to give evidence in person. Prepare a clear, chronological bundle of documents and a summary of your case.
  
  

• Consider expert witnesses: For technical disputes (e.g. valuation, business activity), an independent expert can be persuasive.

• Be realistic about costs and risks: Tribunal proceedings can be time-consuming and, in rare cases, costs may be awarded against you if you act unreasonably.

Can You Really Win Against HMRC?

Yes, but success depends on the facts, the law, and the quality of your evidence. Tribunals and courts are independent and will look at the detail of each case. The cases above show that families can overturn HMRC’s decisions, but also that the rules are strictly applied. Preparation, documentation, and a clear understanding of the technical requirements are essential.

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Disclaimer: This blog post provides general information for educational purposes only. It is not legal advice. Outcomes can vary based on your personal circumstances and the evidence available.