HM Revenue & Customs (HMRC) is ramping up its efforts to recover underpaid inheritance tax (IHT), with thousands of estates expected to come under investigation. In the last tax year, HMRC estimated that taxpayers underpaid IHT by a staggering £325 million, leading to an intensified crackdown set to take full effect in 2025.
Rising Scrutiny on Inheritance Tax Payments
With the Government targeting an additional £2 billion in IHT revenues through upcoming tax increases, families inheriting estates should prepare for greater scrutiny and potential disputes with tax authorities.
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HMRC’s Growing Success in Recovering Underpaid IHT
Record Inheritance Tax Collections from Investigations
HMRC’s ability to uncover underpaid inheritance tax has improved significantly in recent years. Data reveals that the tax authority collected an additional £285 million from inheritance tax investigations in the tax year ending March 31, 2024. This marks a 14% increase from the previous year when £254 million was recovered.
These figures highlight HMRC’s enhanced enforcement strategies, which are expected to become even more rigorous in the coming years.
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Key Areas of HMRC’s Inheritance Tax Crackdown
HMRC is focusing on three primary areas where it suspects underpayments are occurring:
1. Undervalued Residential Properties
One of the major areas of scrutiny is property valuation. Executors of estates often report property values lower than their true market worth by using outdated valuations or exaggerating the extent of needed repairs. HMRC cross-references property prices using HM Land Registry data and online tools like Google Street View to detect discrepancies.
2. Undeclared High-Value Assets
HMRC is also cracking down on estates that fail to declare valuable assets such as:
- Jewellery
- Paintings and artwork
- Antiques
- Luxury vehicles
- Investment collections (e.g., rare coins, stamps, or wine)
Investigators may check contents insurance policies to verify whether high-value items have been omitted from inheritance tax filings.
3. False Claims on Cash Gifts and the Seven-Year Rule
Another area of concern is misreported lifetime gifts. Under inheritance tax rules, gifts made within seven years of death are taxable unless exemptions apply. Some individuals falsely claim large cash gifts were given outside the seven-year window to avoid taxation.
HMRC has developed new tools and data-matching techniques to challenge such claims, requiring clear evidence of when and how gifts were transferred.
The Expanding Scope of Inheritance Tax in 2026 and 2027
Upcoming Tax Increases
Starting April 2026, inheritance tax increases will further raise the amount families owe on inherited estates. By April 2027, pensions will also be included in taxable estates for the first time, significantly widening the tax net.
This expansion means that individuals who previously expected their estates to remain below the tax threshold may now be subject to IHT.
How Inheritance Tax is Calculated
Currently, inheritance tax is charged at 40% on estates valued above £325,000. However, if an individual leaves their home to direct descendants (children, stepchildren, adopted, or foster children), the threshold can increase to £500,000.
Additionally, married couples and civil partners can combine their allowances, allowing the surviving partner to inherit their spouse’s unused tax-free allowance, potentially raising the threshold to £1 million before any inheritance tax is due.
How to Prepare for HMRC’s Inheritance Tax Crackdown
1. Obtain Professional Valuations
To avoid disputes, families should ensure property valuations are conducted by qualified chartered surveyors rather than relying on outdated figures or informal estimates.
2. Keep Records of Gifts and Transfers
Executors should maintain detailed records of financial gifts, including bank statements, receipts, and written documentation, to prove when transfers occurred.
3. Declare All Valuable Assets
Ensure that all valuable assets, including jewellery, artwork, and collectibles, are properly assessed and reported in inheritance tax filings.
4. Seek Professional Tax Advice
With tax laws becoming increasingly complex, consulting an accountant or tax advisor can help ensure compliance and avoid costly penalties.
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HMRC’s Stance on Inheritance Tax Compliance
Despite the rising number of investigations, HMRC maintains that the vast majority of estates will not be subject to inheritance tax. A spokesperson for the tax authority stated:
“Our forecasts show more than nine in ten estates won’t have IHT to pay in the coming years.”
However, for those who do exceed the thresholds, the risk of an HMRC investigation is now higher than ever. Families must take proactive steps to ensure full compliance and avoid unexpected tax liabilities.
With HMRC intensifying its focus on inheritance tax underpayments, estates must ensure accurate reporting and thorough documentation. As tax laws evolve and thresholds tighten, seeking expert advice and maintaining transparency will be key to avoiding costly disputes and penalties.
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