It has recently come to light that HMRC is investigating more inheritance tax returns than it has in six years.
According to recent figures, HMRC opened 4,940 formal inheritance tax enquiries during 2025/26 which amounts to an 18% increase on the previous year. At the same time, nearly 5,000 further estates were referred to HMRC’s compliance team for review before a formal investigation was even opened. This appears to indicate a direction of travel and more resources being applied to collecting IHT.
For executors and beneficiaries (at an already difficult and emotional time) an HMRC enquiry can lead to months of additional administration, requests for extensive documentation, avoidable professional fees and, in some cases, unexpected tax liabilities, interest and penalties.
As advisers, we find that many investigations are triggered by common and avoidable mistakes, often a result of not taking advice at the relevant time. Understanding what HMRC looks for and how to plan effectively for inheritance tax return can help reduce the risk of an enquiry and ensure an estate is administered as smoothly as possible.
Why are HMRC inheritance tax investigations increasing?
There are many reasons that explain the rise in HMRC enquiries, which we run through in this article.
Among them are frozen inheritance tax thresholds, rising property values over time, cross-border complexities (and ignorance as to these complexities) and increasingly complex family wealth. While these factors become more common, HMRC has also invested significantly in compliance and is placing greater emphasis on identifying inaccurate or incomplete returns.
It is important to add, however, that a higher number of investigations does not necessarily mean more people are deliberately avoiding tax. In fact, many enquiries arise because HMRC requires further information before it is satisfied that an estate has been valued correctly. As mentioned above and throughout this article, the stress and work triggered by such an enquiry (even where tax has been paid accurately) can be prevented in the first place.
Undervaluing property in an inheritance tax return
One of the most common reasons for an inheritance tax enquiry is the valuation of residential or investment property, which is often and understandably the most valuable asset in an individual’s estate.
HMRC regularly reviews valuations where:
- properties appear significantly below local market values;
- no professional valuation has been obtained;
- development potential has not been considered; or
- comparable sales suggest a higher value.
Obtaining an independent valuation from an appropriately qualified surveyor can significantly reduce the likelihood of questions being raised later.
Failure to declare lifetime gifts to HMRC
Even for those who are not tax advisors like us, the “seven-year rule” will sound familiar and be broadly understood.
Lifetime gifts may still need to be disclosed even where no inheritance tax is ultimately payable. HMRC frequently examines:
- large transfers of cash;
- gifts of property;
- transfers into trust; and
- gifts made shortly before death.
Executors should ensure they have a complete picture of any lifetime gifting before submitting an inheritance tax return, but this can be aided by individuals keeping records of such gifts during their lifetime.
Gifts where the donor continued to benefit from the asset
Although the seven-year rule is often mentioned, the gift with reservation of benefit rules are generally not understood.
For example, if someone transfers their home to a child but continues living there without paying a full market rent, HMRC may still treat the property as remaining within their estate for inheritance tax purposes. This is despite the fact that the parents, in this scenario, think they have effectively carried out inheritance tax planning.
These arrangements are a common focus of HMRC enquiries and they underscore the need for professional advice when considering lifetime gifts to mitigate inheritance tax.
Missing assets from the inheritance tax return
HMRC has increasing access to financial information from a range of sources.
Bank accounts, investments, shareholdings, overseas assets and business interests should all be identified and accurately reported. Even unintentional omissions can result in delays while HMRC requests further information. This is increasingly the case with assets such as crypto assets. Again, this highlights the need for executors to put in place not simply a Will but to also record accurately details of their assets and provide access to them at the relevant time. In other words, the contents of the safe are immaterial without the keys to access them.
Incorrect Business Property Relief or Agricultural Property Relief claims
Business Property Relief (BPR) and Agricultural Property Relief (APR) can provide valuable inheritance tax savings, but they are also subject to detailed conditions and come with their complexity, particularly given the reforms to these reliefs in recent years. In a nutshell, complacency and assumptions rarely work when it comes to tax planning and that is certainly the case with APR and BPR.
HMRC will often examine:
- whether a business/ farmland genuinely qualifies;
- whether investment activities outweighed trading activities;
- ownership periods; and
- the nature of the assets involved.
Specialist advice is particularly important where reliefs are being claimed.
Inconsistent information across probate documents and inheritance tax documents
The information submitted to HMRC should align with probate applications and supporting documentation.
Differences between property values, asset schedules or financial information can prompt HMRC to ask further questions, even where the discrepancy is simply an administrative error.
Careful preparation before submission can avoid unnecessary delays.
Poor record keeping by executors
Executors are responsible for demonstrating how estate values have been calculated.
HMRC may request:
- property valuations;
- bank statements;
- investment schedules;
- gift records;
- trust documentation;
- correspondence; and
- supporting calculations.
The better the records, the easier it is to respond to any enquiry.
Failing to disclose overseas assets
International families often have assets in multiple jurisdictions.
Foreign property, offshore bank accounts, overseas investments and non-UK trusts can all create additional reporting requirements and significant complexity
Failure to disclose overseas assets accurately is an area that receives increasing scrutiny from HMRC.
In addition, we often find Wills to be inadequate to cover the relevant jurisdictions and specialist advice is crucial to overcome these cross-border issues.
Complex family arrangements
Modern families are often more complex than first anticipated.
Second marriages, blended families, family companies, trusts and jointly owned assets can all affect inheritance tax outcomes.
Seeking advice before submitting returns can help avoid costly mistakes later.
Leaving inheritance tax planning until it’s too late
Perhaps the biggest mistake is assuming inheritance tax planning only becomes relevant after someone has died or when old age kicks in (at which point it can be too late).
Effective lifetime planning can include:
- making use of available gift exemptions;
- reviewing wills regularly;
- considering trusts where appropriate;
- ensuring assets are correctly owned; and
- reviewing eligibility for available inheritance tax reliefs.
Planning early can not only reduce inheritance tax but also make the administration of an estate significantly easier for executors and beneficiaries.
What should executors do if HMRC opens an enquiry?
Receiving an HMRC enquiry does not necessarily mean anything has been done wrong.
Many enquiries simply involve requests for additional information or clarification. However, responding promptly, accurately and with appropriate professional advice can help resolve matters more efficiently.
Executors should avoid making assumptions, ensure all supporting evidence is retained and seek legal advice where valuations, gifts or relief claims may be challenged.
How can you reduce the risk of an inheritance tax investigation?
Although scrutiny cannot be entirely prevented, there are several practical steps that can reduce the likelihood of an HMRC enquiry:
- Obtain professional valuations for significant assets.
- Keep detailed records of lifetime gifts.
- Review inheritance tax planning regularly rather than leaving it until later life.
- Ensure all assets and liabilities are disclosed accurately.
- Take specialist advice where trusts, businesses, agricultural assets or overseas property are involved.
How Quastels can help
Inheritance tax investigations are becoming more common, but careful planning and expert advice can make a significant difference.
Whether you are planning your estate, acting as an executor or responding to an HMRC enquiry, obtaining specialist advice at an early stage can help minimise delays, reduce uncertainty and ensure that the estate is administered correctly.
Quastels’ Private Wealth team advises individuals, families, executors and trustees on all aspects of inheritance tax planning, estate administration, wills, trusts and HMRC enquiries. If you would like advice tailored to your circumstances, please get in touch with our team to discuss how we can help.
