Legal News | 16.10.25

Watch Out, HMRC is on the Lookout

Investigations by HMRC into underpaid inheritance tax (IHT) are on the rise, increasing by 41% in the 2024/25 tax year. According to NFU Mutual, HMRC opened 3,961 IHT investigations in 2024/25, compared with 2,807 in the previous year.

Why might IHT investigations be rising?

31,500 estates were liable to IHT in the 2024/25 tax year, representing an increase of 13% compared with 2021/22. This is unsurprising given that the current IHT ‘nil-rate band’ (the amount on which IHT is charged at 0%) has been frozen at £325,000 since 2009 and will remain so until 2030. IHT receipts are also expected to rise significantly as reliefs, such as ‘Business Relief’ and ‘Agricultural Relief’, are restricted from April 2026 then again from 2027 when unused pension pots come within the scope of IHT. As receipts rise, it is imperative that personal representatives (and trustees) file accurate returns and ensure all IHT is paid correctly.

Where might HMRC look to find unpaid IHT?

1. Undisclosed income, such as investments, property or foreign currency transactions.
2. Sudden wealth transfers in estates with complex arrangements, or last-minute asset movements.
3. Gifts that might break the rules, for instance undeclared or wrongly declared gifts.
4. Premiums for life insurance policies, which if not written in trust, will form part of the taxable estate.
5. Deliberately undervaluing a property for probate purposes.
6. Failing to declare valuables such as jewellery or paintings passed on to relatives.

Steps to avoid an IHT investigation:

1. Keep a clear record of gifts and valuations, including overseas assets or investments.
2. Don’t give gifts if you are to continue to benefit from the asset given away (known as Gift With Reservation of Benefit), e.g. a property or income from an investment.
3. Seek professional advice before making major estate planning decisions.

Particular care needs to be taken by personal representatives when making distributions of estate assets if there is any possibility of HMRC launching an investigation. Personal representatives could find themselves personally liable for any shortfall in IHT if there are insufficient assets remaining in the estate to pay the tax due.

If you are looking for estate planning advice or have been appointed as an executor and require assistance with the estate administration, please contact our Private Client team.