HMRC Inheritance Tax Investigations Are Rising: What Families Need to Know

Almost 5,000 formal Inheritance Tax investigations were opened in 2025/26. That does not mean families should avoid sensible estate planning. It does mean that valuations, gifts, relief claims and records need to stand up to scrutiny.

Inheritance Tax has moved further up HMRC’s compliance agenda. New figures reported from HMRC data show that 4,940 formal IHT investigations were opened in the 2025/26 tax year, an 18% increase on the previous year and the highest level in six years. Almost 5,000 additional estates were also referred to HMRC’s compliance team for review before a formal investigation was opened.

The sums involved are significant. HMRC recovered £247 million of underpaid IHT through investigations in 2024/25 and more than £1.36 billion over the previous five years, according to figures obtained through Freedom of Information requests. At the same time, total IHT receipts reached a record £8.5 billion in 2025/26.

Those figures are a reason to take accuracy seriously, not to assume that every estate is doing something wrong. HMRC’s own tax-gap estimate suggests that around 97% of the theoretical IHT liability was ultimately accounted for in 2024/25. In other words, most tax is paid correctly, but the amount at stake makes the remaining gap worth investigating.

Key points

• HMRC opened 4,940 formal IHT investigations in 2025/26, up 18% on the previous year.

• Nearly 5,000 further estates were referred for compliance review before a formal investigation was opened.

• Property valuations, lifetime gifts, omitted assets, overseas holdings and relief claims are recurring areas of scrutiny.

• An HMRC check does not automatically mean fraud or even an error. It may simply mean the estate needs to substantiate the figures reported.

• Good estate planning should be capable of being evidenced. Clear records can make life materially easier for executors.

Why are Inheritance Tax investigations increasing?

There is no single cause. Several trends are converging.

First, the IHT tax base is becoming more valuable. The ordinary nil-rate band has been fixed at £325,000 since 2009, while property, investments and other assets have generally risen in value over that period. The band is now legislated to remain at £325,000 through the 2030/31 tax year. More estates can therefore move towards the taxable range without any change in the family’s behaviour.

Second, the receipts themselves are becoming more material. HMRC collected £8.5 billion of IHT in 2025/26, compared with £3.5 billion twenty years earlier. Higher receipts make accurate reporting and compliance an increasingly important part of the tax authority’s work.

Third, the rules are changing. Business Relief and Agricultural Relief were reformed from April 2026, and from 6 April 2027 most unused pension funds and pension death benefits will be brought into the estate for IHT purposes. Those changes increase the amount of information executors may need to obtain and reconcile.

Finally, HMRC has broad access to information. An IHT account is not considered in isolation. Bank records, property data, company information, investment statements, insurance arrangements and other records can all help HMRC test whether the picture presented by an estate is complete and internally consistent.

What does an HMRC Inheritance Tax investigation actually mean?

Inheritance Tax has a slightly unusual statutory framework. Unlike Self Assessment, HMRC does not open a conventional formal “enquiry” into an IHT return. In practice, however, it can ask questions informally, use statutory information powers, make a determination of additional tax and take steps to recover tax it considers due.

For an executor, the practical experience can still feel like an investigation: HMRC may ask for documents, explanations, valuations and evidence supporting reliefs or exemptions. A request for information is not proof that something has gone wrong. The objective is to establish whether the estate has been reported and taxed correctly.

Time limits can also be long. The period in which HMRC can seek additional IHT depends on the facts and the behaviour involved. Where there has been carelessness, deliberate behaviour, missing accounts or offshore issues, the period can extend well beyond the ordinary window. Executors should therefore keep the supporting records rather than treating the probate file as finished once assets have been distributed.

Seven areas that can attract HMRC scrutiny

1. Property that appears undervalued

Property is often the largest asset in an estate and one of the easiest figures for HMRC to test against external evidence. For IHT purposes, assets are generally valued at the price they might reasonably have fetched on the open market at the relevant date.

A valuation that looks low compared with similar local sales, ignores development potential or is unsupported by professional evidence may invite questions. Where a property is unusual, valuable or will be retained by beneficiaries rather than sold shortly after death, a robust independent valuation can be particularly useful.

2. Incomplete records of lifetime gifts

Lifetime gifting is a perfectly legitimate part of estate planning, but it creates a record-keeping burden. Executors may need to identify gifts made in the seven years before death, establish which exemptions applied and understand the order in which gifts use the nil-rate band.

The difficulty is often practical rather than technical. A transfer on a bank statement may be obvious, but its purpose may not be. Was it a loan, a repayment, a birthday gift, a contribution to a property purchase or a regular gift out of surplus income? A simple gift schedule maintained during life can prevent the executor having to reconstruct the answer years later.

3. Gifts where the donor kept the benefit

Giving an asset away does not necessarily remove it from the estate if the donor continues to enjoy it. HMRC’s gift-with-reservation rules are designed to catch arrangements where legal ownership changes but the economic benefit has not genuinely been given up.

The classic example is giving a home to children and continuing to live in it without paying a full market rent. Similar issues can arise with holiday homes, valuable art or other assets that remain available for the donor’s use. These cases can be especially difficult if the family believed that signing over ownership was enough.

4. Missing assets, insurance policies or valuable possessions

An IHT account needs to present a complete picture of the estate. Missing bank accounts, investment portfolios, life assurance proceeds, loans owed to the deceased, jewellery, art, classic cars or other valuable items can create inconsistencies when HMRC compares the return with other records.

Life assurance is a useful example. Whether a policy falls into the estate can depend on how it was structured and whether it was written in trust. Executors should know that a policy existed, obtain the relevant documentation and avoid assumptions based solely on who received the proceeds.

5. Business Relief or Agricultural Relief claims

Relief claims can remove substantial value from the IHT calculation, so it is unsurprising that HMRC may test whether the conditions have been met. With Business Relief, the underlying activity, ownership period, nature of the business and any excepted assets can all matter.

The rules changed from 6 April 2026. The 100% rate of Business Relief and Agricultural Relief is now subject to a combined £2.5 million allowance for an individual, with qualifying value above the available allowance generally receiving 50% relief. Where a family business or qualifying investment is central to an estate plan, the evidence supporting the claim should be treated as part of the planning itself, not as an afterthought for the executor.

6. Overseas assets and residence history

International families can face an additional layer of complexity. Overseas property, foreign bank accounts, investments and trusts may need to be considered, and the UK IHT position can depend on the deceased’s long-term residence history.

HMRC may also be able to compare information across jurisdictions. Families with international assets should make sure their executor knows what exists, where the records are held and which professional advisers have dealt with the relevant country.

7. Figures that do not reconcile

Sometimes the issue is not one dramatic omission but a collection of inconsistencies. Bank statements may show investment income without a corresponding investment asset. Insurance records may suggest an item of value that is absent from the estate inventory. Company accounts may not fit comfortably with a claimed business valuation.

A well-prepared IHT account should tell one coherent financial story. If different documents point in different directions, HMRC may reasonably ask why.

A practical evidence checklist

The documents needed will vary by estate, but the following illustrates the kind of evidence that can make an executor’s position easier to explain.

Area	Useful evidence	Why it matters
Property	RICS or other suitable professional valuation; comparable sales; details of development potential	Supports the open-market value reported at death.
Lifetime gifts	Gift log showing date, recipient, amount and exemption relied upon; relevant bank statements	Helps reconstruct the seven-year history and distinguish gifts from loans or other transfers.
Life assurance	Policy schedule, trust documentation and correspondence with the provider	Clarifies whether proceeds form part of the estate and who is entitled to them.
Business interests	Company accounts, shareholder records, valuation evidence and records supporting trading status	Helps support the value reported and any Business Relief claim.
Overseas assets	Foreign statements, property valuations, adviser details and tax records	Reduces the risk of assets being overlooked and helps deal with cross-border questions.
Pensions	Scheme details, beneficiary nominations and current values	Will become particularly important for deaths on or after 6 April 2027.

What if HMRC concludes that more Inheritance Tax is due?

If an investigation identifies an underpayment, the estate may face the additional tax plus interest. IHT is generally due by the end of the sixth month after the month of death, and HMRC’s current late-payment interest rate is 7.75% from 9 January 2026. Interest rates can change, so the live rate should always be checked.

Penalties are separate from interest and depend heavily on behaviour. An innocent difference of opinion over a difficult valuation is not the same as a careless return, and carelessness is not the same as a deliberate omission. HMRC’s general penalty framework allows higher penalties as behaviour becomes more serious, potentially reaching 100% of the extra tax in cases of deliberate and concealed inaccuracies.

That distinction is important. The objective should be accuracy and reasonable care, not perfection. Where an estate contains complex property, private companies, trusts, international assets or substantial lifetime gifts, obtaining appropriate professional input can help demonstrate that reasonable care was taken.

What can families do now, before an executor is involved?

The most valuable preparation often happens years before death. A tidy estate is easier to administer, easier to value and easier to explain.

Keep an up-to-date estate schedule

List property, bank accounts, investments, pensions, business interests, life policies, valuable possessions, liabilities and overseas assets. Record where the supporting documents are held.

Maintain a lifetime gift record

For meaningful gifts, record the date, amount or asset, recipient and the exemption or planning rationale. For regular gifts out of income, retain evidence of income, expenditure and the pattern of gifts.

Use defensible valuations

Do not deliberately aim low. For material property, business interests or unusual assets, use an appropriately qualified valuer and keep the report.

Review relief-based planning

If Business Relief is part of the plan, understand why the investment or business is expected to qualify, the ownership period, the risks and what records will be available to the executor.

Bring pensions into the estate-planning conversation

From April 2027 most unused pension funds and death benefits will enter the IHT calculation. Families should review beneficiary nominations, cash-flow planning and the information executors will need.

Make sure the will and financial plan still match

Marriage, divorce, a business sale, retirement, a house move, large gifts or a significant change in wealth can all justify a review. Tax rules also change, so plans should not be left untouched for a decade.

Does greater HMRC scrutiny change how people should plan?

It should change the standard of preparation, not the willingness to use legitimate planning.

Gifting, trusts, life assurance and Business Relief all have established roles in estate planning. Each comes with different legal, tax, investment and liquidity considerations. The fact that HMRC may review a transaction or relief claim does not make the strategy inappropriate. It means the assumptions and evidence should be capable of explanation.

Business Relief can be relevant where an investor wants to retain ownership of capital while investing in qualifying trading businesses, rather than making an outright gift. The usual minimum ownership period is two years, subject to the detailed rules, which is shorter than the seven-year period associated with many lifetime gifts. However, Business Relief is assessed under tax law, qualification cannot be guaranteed and the investment itself carries risk.

For many families, the strongest plan is therefore not the one that produces the largest theoretical tax saving. It is the one that balances tax efficiency with access to capital, investment risk, family objectives and a clear audit trail.

Frequently asked questions

Does HMRC investigate every estate?

No. Many estates do not pay IHT and many taxable estates are settled without a formal investigation. HMRC may ask questions where it needs more information or sees a risk that the estate has been under-reported.

What can trigger an Inheritance Tax investigation?

Common areas include property or business valuations, incomplete lifetime gift records, gifts with reservation of benefit, omitted assets, overseas holdings, inconsistent figures and claims for relief that need supporting evidence.

Can HMRC look at bank statements?

HMRC has broad information powers and bank records can be relevant where they help establish income, assets, lifetime transfers or other facts needed to check an IHT position.

How far back can HMRC investigate Inheritance Tax?

The answer depends on the circumstances. The relevant statutory periods can be significantly longer where there has been careless or deliberate behaviour, where an IHT account was not delivered or where offshore issues arise. Specialist advice is sensible if HMRC is revisiting an old position.

What happens if HMRC disagrees with a property valuation?

HMRC may seek further evidence or a different valuation. A contemporaneous professional valuation and details of comparable transactions can make it easier to support the figure originally reported.

Will an honest mistake lead to a penalty?

Not automatically. Penalties depend on the nature of the inaccuracy and the behaviour involved. Taking reasonable care, keeping evidence and correcting errors promptly are important factors.

Why will pensions matter more from April 2027?

For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be brought into the estate for IHT purposes. That will add another asset category for many executors to identify, value and reconcile.

Planning ahead with Albatross Invest

Inheritance Tax planning works best when it is started early, reviewed regularly and supported by clear records. For some investors, Business Relief may form part of that plan alongside other measures such as gifting, insurance and appropriate estate structuring.

Albatross Invest provides access to a professionally managed investment approach focused on qualifying trading activity and asset-backed lending. Where you already have a financial adviser, speak to them about whether Business Relief is appropriate within your wider estate plan. Where you do not have an adviser, contact us to discuss the investment and the information available.