What is an Inheritance Tax Investigation and is help available?

HMRC have exponentially increased the number of Inheritance Tax enquiries they started, concerning both the estates of a deceased person and certain trusts. A recent third-party Freedom of Information Act request found that there were some 4,171 IHT enquiries during the 2024/25 tax year, which was a sharp increase of 38% from 3,028 enquiries in 2023/24. This seems to be a reflection of the new government who have since 2024 made significant changes to Inheritance Tax exposure generally.

For example, private pensions will become subject to IHT for the first time from April 2027, and from April 2026, farm owning families will only be able to claim Inheritance Tax relief (for qualifying businesses and agricultural assets) of up to £1 million. This exposes so many farmers and business people who were previously able to leave the whole of their qualifying businesses to their families tax-free.

Why are there more IHT enquiries?

From experience, there have always been a lot fewer IHT compliance checks than those into direct taxes like Income Tax, Capital Gains Tax, Corporation Tax and indirect taxes like VAT. Our view is that HMRC have been tasked to do more Inheritance Tax investigations, and the law has been tweaked to force more IHT in though self-assessments. We expect to see so many more such enquiries as HMRC’s officers get used to running them and becoming more proficient in the IHT nuances since the tax is very different to those on business profits and supplies of goods/services.

Administration of IHT (Returns for) Estates

Following a death, the deceased’s estate must submit an IHT tax return within 12 months of the end of the month in which the death occurred. However, the IHT needs to be estimated sooner, because it becomes payable at the six months mark. The filing deadlines for trusts and companies liable to IHT entry charges at 20% (in certain circumstances) and those liable to 10-year anniversary / periodic charges at up to 6% and exit charges at up to 6%, are different.

In practice, HMRC officers review IHT returns soon after receiving them, and write out with queries within months, if not, weeks sometimes. Unlike for example, a formal notice of enquiry concerning personal taxes, being issued almost one whole year after the return’s submission.

What does an IHT Compliance Check look like in practice?

Unlike with other taxes, which are self-assessed too, there isn’t a formal self-assessment enquiry framework. Instead, HMRC officers from the Customer Compliance teams write to confirm their interest in the IHT returns/accounts, and ask questions and/or call for underlying supporting information.

Where co-operation is not forthcoming HMRC can use formal Information Notices to force information in from first parties like executors / administrators of the estates, and further utilise the threat of penalties for failing to comply with such notices. It goes without say that information notices must be proportionate and relevant to the tax position of the person/estate concerned; which needs to be managed skill-fully as HMRC could be after more than they are entitled to and even worse, go on a fishing expedition leading to more questions and resources being required if the information is unknowingly shared so easily.

Unfortunately, to the detriment of someone dealing with an IHT compliance check, there is no formal mechanism to ask for the enquiry to be closed where an impasse may have been reached. In contrast to direct taxes self-assessment enquiries, one can make an application to the first-tier tribunal for a direction forcing HMRC to close their enquiry or explain why that should not happen clearly.

We are co-operative with HMRC as far as possible, often dealing with their asset valuations team and even the Valuation Office, on the matter of establishing the market values of assets left in the estate. This sometimes leads to us and our clients disagreeing with HMRC, and as such we must work harder to convince HMRC that the evidence we have produced is better than theirs or warrants further attention and importance etc.

At the end of their enquiries, HMRC formalise their position and raise IHT assessments, crystallising any adjustments and thus extra tax (if any) from their perspective. While this mechanism differs significantly than for direct taxes, the principle of establishing the actions taken therefore the ‘behaviour’ of the relevant person, usually, the executor/ administrator of the estate, remains in point.

Readers may be familiar with the usual tax assessing time-limits: four years where one took ‘reasonable care’ with the IHT account’s preparation and submission; six years where they failed to take reasonable care (referred to as being careless usually), or 20 years where HMRC allege deliberate/dishonest actions as in the case of tax fraud. However, where no IHT return/account was filed and the relevant person’s behaviour was deliberate/dishonest then importantly, there are no time-limits for HMRC to assess the IHT considered to be due.

What are the best practices and recommendations to reduce IHT return adjustments?

• Ensuring all bank current / saving / investment accounts, shares and other investments are declared accurately. This includes cryptoassets wallets and portfolios in the modern world.
• Understand and claim IHT tax reliefs and exemptions that should apply in the circumstances. For example, the spousal exemption and Business Relief (formerly Business Property Relief).
• Ensuring accurate records are maintained of any gifts made, to determine which were made out of surplus income and those other gifts (potentially exempt transfers) made within the past 7 years and liable to be included in the estate.
• Ensuring unincorporated businesses including tangible and intangible assets are professionally valued, as well as shares in privately held business companies, and  high value personal assets like artwork and jewellery.
• Also, ensuring a Will is prepared helps clarify matters later too.

So all is not lost in Inheritance Tax Enquiries?

No, careful management of Inheritance Tax enquiries is a must, as one must be able to provide HMRC with the information they need to corroborate the accuracy of and reasonableness of valuations and other figures provided on the IHT returns, e.g. reliefs claimed. We always focus HMRC’s attention on progressing towards early conclusions in the difficult circumstances post death. However, this may involve forcing a re-think too, e.g. having a statutory Independent Review of the officer’s adjustments decision and/or utilising the ADR mechanism or even seeking assistance from the First-tier Tribunal.

IHT compliance checks are sometimes complex and so specialist advice is required; which we can provide to ensure beneficial tax reliefs and exemptions are fully utilised. Robust management of such enquiries is a must, to ensure HMRC are doing what they can and should, not what they feel like. That’s where we come in! Volunteering information and co-operating with HMRC’s enquiries diligently, even when making a voluntary disclosure, gives one the best opportunity to expedite a conclusion and reduce exposure to statutory interest and reduce penalties that follow the IHT.

As above, published data shows that the number of Inheritance Tax investigations has been increasing, however, the proportion of them that resulted in HMRC making amendments has been reducing. Over the last few years though, most IHT compliance checks have still led to amendments to the original IHT returns. It would appear that HMRC are returning to a pre Covid-19 pandemic level of IHT compliance checks of over 5,000 each year, and are expected to increase that too.

A research briefing published by the House of Commons Library on 2nd October 2025 highlighted that HMRC had reported that 31,500 estates (4.62% of all deaths in the UK) paid inheritance tax in 2022/23, the last year for which outturn data is available. The tax raised £6.70 billion that year. This is expected to rise dramatically as various IHT reliefs are curtailed and the value of UK real estate continues to appreciate.

How can we help?

If you or your client has been contacted by HMRC about an IHT compliance check then we can help steer that investigation, to keep it on track and focused, to being about a conclusion sooner. We will fully review the IHT return or account and any underlying report and papers, so that we robustly defend the return submitted.

Importantly, we deliver that all-important trusted ‘buffer’ between our clients and HMRC during their sometimes in-depth and intrusive investigations and in voluntary disclosures too. Get in touch to learn more about how Amit and the Tax Investigations and Disputes team have successfully guided clients through the WDF disclosure, compliance checks, COP9 or COP8 investigation processes.

Also, in the context of a deceased’s estate, we sometimes find that they had undeclared income and/or gains during their lifetimes, in the UK and/or offshore. So if we become aware of such, we usually recommend that the executor / administrator makes a voluntary disclosure to HMRC. An unprompted, wholly voluntary disclosure ensure little or no penalties where taxes are payable, and a streamlined disclosure process that avoids lengthy enquiries and the need to meet HMRC. It follows that we are able to expertly manage that process smoothy and prepare a robust disclosure report to ensure HMRC are readily satisfied and the disclosure’s acceptance is expedited.

Learn more about how we have helped our clients through their kind feedback here.

‍