James Ward has been a private client lawyer for 18 years and is now a partner at the London law firm Kingsley Napley. Yet he found himself spending two days of his career putting Post-it Notes on belongings in a large house that his clients had inherited and were arguing over.

“I was putting stickers on everything even coffee mugs, knives and forks and plates,” Ward said. At £200 an hour, this cost his clients £3,000.

It took four years to administer the estate because the siblings couldn’t agree over who was going to get what. While they squabbled, their inheritance tax (IHT) bill was racking up, adding thousands of pounds of interest to the taxman’s coffers.

Ward said: “All that time, HM Revenue & Customs was owed a few million pounds’ worth of inheritance tax, and was reaping the rewards of a large interest bill.”

A £100,000 IHT bill that was due in 2020 and left unpaid for four years would have racked up £19,270 interest by now.

When it comes to inheritance tax disputes, lawyers have seen it all, and the number of feuds are growing as more families are caught in the IHT net.

IHT is the levy paid on the estate of someone who has died. Originally devised as a tax on the super wealthy, IHT is being paid by a growing number of families. Just over 4 per cent of deaths resulted in a IHT charge in the 2020-21 tax year, but this is likely to rise to 7 per cent by 2033, according to the Institute for Fiscal Studies, an economic think tank.

The tax is loathed by many families, who argue that it penalises those who want to leave their wealth to the next generation.

You don’t have to pay IHT on the first £325,000 of an estate — £500,000 if it is worth £2 million or less and includes a family home left to a direct descendant (such as a child or grandchild). Any other value above that threshold can be subject to 40 per cent tax.

There is no IHT to pay on anything left to a spouse or civil partner and they also inherit any of the deceased’s unused IHT allowance. This means a married couple can pass on up to £1 million IHT-free. Under the seven-year rule, any gifts made more than seven years before your death are not counted towards the value of your estate for IHT purposes.

“Arguments over inheritance tax are increasing, because more people are trying to avoid it,” said Mark Stubberfield from the national law firm Taylor Rose. “The rules around inheritance tax are complicated and are often misunderstood, so when someone tries to do something to avoid paying it and it doesn’t work, there’s definitely a lot more tension created.”

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He said that in one case a mother’s attempt to give away her property and avoid IHT backfired, leaving one sibling with a £50,000 IHT bill while his sister was left paying nothing.

The mother had a portfolio of rental properties, and gave some to her daughter, then gave the rest of the remaining homes to her son. She died within seven years, which meant that the gifts became subject to IHT. Because of the way it is calculated, those gifts that were made first qualified as part of the £325,000 allowance. Stubberfield said that later gifts, such as the son’s properties, did not qualify for the allowance because it had already been used up and so he got a tax bill.

It caused friction between the siblings, but in the end they agreed to take money out of their mother’s estate so that the IHT was divided fairly.

Some families are going to extreme lengths to avoid tax, said Emily Robertson of the London law firm Burgess Mee. “Some people have given away most of their cash, and others have downsized to free up money to give to their children. I’ve also seen extreme cases of people transferring their property across to their children, and it hasn’t worked.”

The tax bills can be significant. More than 2,200 estates valued at between £300,000 and £400,000 paid an average of £13,500 in IHT in 2021-22, but some 170 estates valued at £10 million or more paid an average of £3.91 million.

If IHT is not paid within six months of a death, interest is charged at the Bank of England base rate plus 2.5 per cent.

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More families are being stung by the charge because the £325,000 IHT allowance has been frozen since 2009. In that time property prices, particularly in London and the southeast of England, have soared. Some 92 estates in Kensington collectively paid £103 million in IHT — the most of any parliamentary constituency — in 2021-22, according to Savills’ analysis of HMRC data.

Some 123 estates in Hampstead and Kilburn paid a collective bill of £81 million, while 106 in Chelsea and Fulham paid a total of £76 million. The constituencies outside London with the biggest IHT bills were South West Hertfordshire at £61 million and South West Surrey with £49 million.

Ward says many IHT disputes arise over whether to sell properties to settle inheritance tax bills.

“Holiday homes in particular can be powder keg territory,” he said. “Some people never use them and want to sell them, while others want to keep it over their dead body.”

While arguments drag on, the IHT bill keeps racking up. One family Ward is advising have been arguing over what happens with the estate for two years.

“I told them, ‘Look, if you can’t agree, the only winners will be HMRC.’ I gave them a slideshow of figures showing the difference between agreeing and not agreeing, and while they may get a hospital wing named after them if it all goes to HMRC, I don’t think that’s their plan.

“There can be a lot of pent-up anger and grief and mistrust whenever someone dies, and where there’s money involved. Our job is to try to keep things as smooth as possible, but sometimes it’s like pushing water uphill, frankly.”

The bills for dawdling can be significant, which is why early planning is key to nipping any issues that could arise in the bud said Matt Briggs from the law firm Irwin Mitchell.

He has about 50 clients on his books, including sports stars and business owners, with estates ranging from £1 million all the way up to £1 billion.

“I’ve seen cases where siblings have spent a significant amount of the estate while arguing over personal belongings,” Briggs said. “They’ll ask: Where is this item? Mum wanted me to have this. Where is the ring?’ But while the squabbling takes place, it’s only delaying the administration of the estate, which can mean late-filing penalties and interest on your IHT bill.”

Sometimes he feels he has to act more like a therapist than a lawyer. “I’ve been in meetings where clients have understandably got upset, and cried about the thought of leaving behind their children,” he said. “I’ll look at body language to see whether there are any tensions, and if someone is getting emotional, we can take a break, have a cup of tea, and recharge.

“You might have £80 in the bank, you might have £800 million, but the issues you have as a family are generally the same.”

April Leeson from the financial advice firm The Private Office said that making the most of tax relief and allowances could lower your tax liabilities. “Sort out your financial planning nice and early,” Leeson said. “The risk of friction between family members tends to come from surprises. Keep the family aware of the decisions you’re making in regards to your estate.”

1. Pensions

Pension savings are considered as being outside your estate, and therefore IHT-free. “It’s a really tax-efficient way of passing on money,” Leeson said. You can leave your pension to anyone you want, and can split the pot between several people. “If you have children from previous marriages or grandchildren from previous marriages, pensions are a way of planning around that and sharing your assets equally.”

2. Allowances

Everyone has an “annual exemption” gift allowance of £3,000 a year. This money is not counted as part of your estate. You can give away up to £250 to other people as many times as you want, IHT-free. You also get a wedding allowance that allows you to give up to £1,000 IHT-free to someone who is getting married or entering a civil partnership — £2,500 if they are your grandchild and £5,000 if they are your child. “If you can afford to use your annual exemptions, it’s a really good way of reducing the IHT bill,” Leeson said.

3. Life insurance

Those with a significant IHT liability could consider taking out a small life insurance policy to cover the bill, Leeson said. “It won’t reduce your liability in any way, but it’s a sure fire way of making sure that whoever is dealing with the estate has money to cover the bill,” Leeson said. It can help the family to avoid having to sell off parts of the estate to pay the bill. Make sure that the policy is written in a trust, because this will remove it from your estate and mean your beneficiaries can use the money without having to wait for probate.

4. Alternative investments

Investing in stocks and shareslisted on the alternative investment market (Aim) comes with IHT perks. “If you are willing to take a high amount of risk on a proportion of your wealth, you could invest in Aim stocks,” Leeson said. “If you hold them for two years, they qualify for business relief and then they will be outside your estate for inheritance tax.”