HMRC increases IHT investigations

In the tax year ending 5 April 2025, IHT investigations increased from around 3,800 to almost 4,000. Reports say that this has resulted in additional IHT payments of £246million. 

 

The process has included artificial intelligence (AI) tools to match data and find inconsistencies and errors. 

 

Rising house and asset prices, combined with frozen tax thresholds, have resulted in more estates paying IHT. The tax-free threshold of £325,000 for IHT hasn’t changed since April 2009, even though house prices have increased by around 82%. With other assets and unused pension pots now also included, even more estates will pay IHT. 

 

HMRC investigations can look at: 

Undisclosed income or assets. HMRC can access bank statements to look for income or undisclosed assets. This may include investments, property or significant transactions in foreign currencies. Property insurance contents lists may show valuable assets not included in estates for IHT purposes. Investigators may also look for life insurance premium payments. For policies not written in trust, the payment when you die could affect IHT. 

 

Asset transfers. If you survive for seven years, you can transfer assets to family members to reduce IHT. However, investigations are more likely for estates with complex arrangements or last-minute asset transfers. You need good records to show exactly when you gave assets away. 

 

Gifts. HMRC may review gifts made more than seven years ago to confirm they’re genuine. ‘Gifts with reservation of benefit’ mean you have continued to benefit from an asset you’ve given away. For example, you may give your home to your children but continue to live in it without paying rent. This would mean the assets still attract IHT. 

 

Undervaluation. Inspectors may look for undervalued family homes or use of out-of-date information for probate valuations. 

 

Complex IHT rules can be challenging for executors. As more estates face IHT liabilities mistakes and omissions become more likely. By finding these errors, HMRC can increase the tax collected. 

 

Failing to declare the correct market value can also lead to extra IHT bills. However, the test for residential property valuations depends on what people will pay. In many cases a property sale will take much longer than the six months allowed to pay IHT. This leads to disputes concerning the amount of IHT due, even when estates include ordinary family homes. 

 

Executors have personal responsibility to pay the correct tax. Once beneficiaries have received money and assets from the estate, executors remain responsible for any IHT shortfall. However, they can reclaim overpaid inheritance tax if a property sells for less than its estimated value within four years. They may even claim interest on the overpayment. For sales of shares, they must claim refunds within a year. From 2022 to 2025 more than 18,000 estates made claims for IHT refunds.