In the 2024–2025 tax year, HMRC increased the number of formal Inheritance Tax (IHT) investigations by 41% compared to the previous year. This rise reflects renewed efforts to recover lost revenue through underreported or misvalued estates.
Several factors have contributed to increased investigations:
- Frozen tax thresholds: The nil-rate band (£325,000) and residence nil-rate band (£175,000) remain unchanged until at least 2030, meaning more estates are now subject to IHT.
- Advanced data analysis: HMRC is utilising artificial intelligence and detailed financial data to scrutinise IHT returns more closely.
- Upcoming rule changes: From April 2027, most unused pension funds and death benefits will be included in the value of a person’s estate for IHT. This will increase liability and complexity for future estates.
Common Triggers for HMRC Investigations
Investigations are often prompted by:
- Undervaluation of estate property: Using outdated or overly conservative valuations may be flagged.
- Omitted assets: Items such as jewellery, artwork, or foreign accounts that are not declared can lead to scrutiny.
- Misreported gifts: Gifts made within the 7 years before death must be included on the IHT return – omissions are a common trigger.
Why Professional Advice Is Essential
Dealing with IHT is complex, especially during emotionally challenging times like bereavement. Seeking professional advice offers several benefits:
- Accurate asset valuation: Solicitors can help ensure properties and possessions are properly valued, and that qualified professionals are instructed to carry out date of death valuations.
- Compliance with reporting deadlines: Executors must file an IHT return within 12 months of death and pay any IHT owed within 6 months to avoid interest accruing on unpaid IHT.
- Protection against penalties: Errors, whether innocent or deliberate, can lead to costly investigations. Expert guidance helps mitigate this risk.
With HMRC’s powers expanding and scrutiny intensifying, early and informed advice is essential.
If you’re concerned about dealing with an estate or acting as an Executor, our Private Client department is here to help.