More families were put under scrutiny by HMRC last year over what the taxman believed to be outstanding inheritance tax bills, and it successfully clawed back almost £250 million in unpaid inheritance tax.
The number of investigations into underpaid inheritance tax (IHT) rose from 3,793 to 3,977 over the course of the year ending 5 April 2025, a new Freedom of Information request to HMRC by TWM Solicitors found.
HMRC netted an additional £246 million as a result of these inheritance tax investigations, the FOI showed.
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The rise in the number of investigations reflects HMRC’s increased efforts to recover revenue from underreported and misvalued estates, TWM Solicitors said.
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With the annual inheritance tax take rising more than 61% to £8.3 billion since 2020, the law firm said it believes HMRC is alert to the risk that more families may be tempted to underpay and avoid inheritance tax, a tax that some consider to be unfair.
David Lunn, partner in the private client team at TWM Solicitors, said: “HMRC’s investigations are becoming increasingly complex, particularly when it comes to residential property.
“With tax rules growing ever more complicated, and the IHT net widening with each Budget, people need to ensure they obtain proper advice. Penalties can run into tens of thousands of pounds.”
Why is the number of IHT investigations rising?
HMRC is now using artificial intelligence, data-matching and other advanced big data tools to detect unpaid tax, TWM Solicitors has found. As a result it is getting increasingly adept at identifying inconsistencies and errors in IHT returns, prompting a growing number of investigations.
Rising house prices and asset prices, combined with frozen tax thresholds, have resulted in more people having to pay inheritance tax, and also increases the potential for evasion.
Since April 2009, the IHT nil-rate band has been frozen at £325,000. This is a marked difference to the not so distant past – since 1986 the tax threshold has risen every year until 2009 (except in 1993 and 1994). That is 21 rises in 23 years followed by no rises in 17 years with no increases predicted in the near future either.
Lawyers have said a sharp increase in the burden of any tax can lead to a rise in tax evasion and avoidance.
The government’s decisions to bring unspent pension pots into the scope of IHT and cut agricultural and business property reliefs will likely drag more estates into the tax net, TWM said. The firm expects this could trigger further HMRC scrutiny of families’ inheritance tax filings.
“Inheritance tax investigations have risen because HMRC knows that, as the extent of IHT widens, irregularities become more common, and so the amount of tax, interest and penalties they can recover is likely to rise,” said Lunn.
“Recent Budgets are a good example, as they have drawn even more assets into the scope of IHT. That inevitably leads to more challenges and investigations.”
Why does HMRC investigate inheritance tax returns?
HMRC investigates what it believes are errors in inheritance tax returns. These errors commonly include failing to declare personal items such as jewellery and furniture – assets many people do not realise must be included.
“Not declaring goods has prompted countless IHT investigations in the past,” Lunn said.
“HMRC is very strict about what must be included in an IHT return, so items such as jewellery or even a valuable set of dining chairs must be declared at their full market value,” he added.
However, some of the biggest – and most complex – disputes between families and HMRC revolve around residential property valuations, Lunn said, which remain a “significant area of friction between HMRC and estates that have to pay IHT”.
The freeze in IHT thresholds has been particularly painful for homeowners, as property prices have risen sharply in recent years.
HMRC has become increasingly sophisticated in identifying underpayments. To challenge undervalued properties, for example, the taxman is reportedly drawing on data from the Land Registry, the Trust Registration Service and even Google Maps.
Lunn said: “The IHT threshold was originally set so that only families with significant assets would pay the tax. But after years of being frozen, even families with a relatively modest home are now finding they owe IHT.”
An HMRC spokesperson said: “The majority of people pay the correct amount of inheritance tax. In cases where it is suspected someone has not, investigations can be opened to address issues and ensure the system remains fair.”
