Tax probes initiated by HMRC uncover additional 1200 family estates under investigation for inheritance tax evasion
In the latest financial year, HMRC has seen a significant increase in investigations into potential underpayment of inheritance tax (IHT). According to HMRC statistics, the number of investigations rose by 41% in the 2024/25 tax year, from 2,807 to 3,961 [1].
This surge in investigations comes as the revenue from IHT for the April to June 2025 period reached £2.22 billion, an additional £134 million compared to the same period in 2024 [2].
Sean McCann, a chartered financial planner at NFU Mutual, highlights the extensive investigatory powers HMRC holds when scrutinising potential IHT underpayment cases. McCann states that maintaining accurate records of gifts, valuations, and overseas assets or investments can help manage potential compliance checks [3].
HMRC's investigations can be far-reaching, examining various aspects of the deceased's estate. Common reasons for these investigations include suspected irregularities in the reporting of assets, such as undervaluation of assets or large gifts made prior to death to avoid IHT [1][3].
If HMRC suspects irregularities, they may look at outgoings such as gifts made in the seven years before death and premiums for life insurance policies that are not written in trust [3]. They may also analyse bank statements to identify undisclosed assets such as investments, property, or significant foreign currency transactions [3].
HMRC's investigations can span a considerable period, with the authority checking on estate valuations as much as 20 years after the payment of IHT [1][4]. In more serious cases, HMRC can exercise criminal investigation powers akin to law enforcement, including conducting interviews under caution, seeking and executing search warrants, making arrests, and searching premises [4].
Penalties for careless or deliberate tax underpayment can be severe, ranging from 35% to 200% of the unpaid tax depending on culpability [4]. To avoid such penalties, it is crucial to get it right on the initial IHT return [3].
Recording gifts, income, and expenditure on the HMRC IHT403 form can help record gifts during one's lifetime [3]. From April 2027, pensions will be added into the taxable estate, which may erode the residence nil rate band for many families [6].
As the complexity of IHT rules grows, experts expect more families will be caught in the IHT net with ever-increasing bills [7]. Sean McCann also mentioned that there are common myths and ways to reduce your IHT bill, which are discussed in separate articles [3].
For executors and personal representatives, HMRC provides guidance and tools to help with compliance [5]. It is essential to understand the rules and seek professional advice to ensure compliance and avoid potential penalties or interest payments.
[1] HMRC (2025). Inheritance Tax Statistics 2024/25. [Online] Available at: https://www.gov.uk/government/publications/inheritance-tax-statistics-2024-to-2025/inheritance-tax-statistics-2024-to-2025
[2] HMRC (2025). Inheritance Tax Revenues for April to June 2025. [Online] Available at: https://www.gov.uk/government/news/inheritance-tax-revenues-for-april-to-june-2025
[3] McCann, S. (2025). Common Reasons for HMRC Inheritance Tax Investigations. [Online] Available at: https://www.nfuonline.com/news/2025/05/common-reasons-for-hmrc-inheritance-tax-investigations/
[4] HMRC (2023). Criminal Investigation Manual. [Online] Available at: https://www.gov.uk/government/publications/criminal-investigation-manual/criminal-investigation-manual--2
[5] HMRC (2023). Inheritance Tax: Guidance for Executors and Administrators. [Online] Available at: https://www.gov.uk/guidance/inheritance-tax-guidance-for-executors-and-administrators
[6] HMRC (2023). Pensions and Inheritance Tax. [Online] Available at: https://www.gov.uk/guidance/pensions-and-inheritance-tax
[7] McCann, S. (2025). More Families Caught in Inheritance Tax Net with Ever-Increasing Bills. [Online] Available at: https://www.nfuonline.com/news/2025/05/more-families-caught-in-inheritance-tax-net-with-ever-increasing-bills/
- To ensure compliance with personal-finance regulations and avoid potential investigations, as seen in the case of inheritance tax (IHT), it's advisable for individuals to maintain accurate records of gifts, valuations, property, investments, and other significant financial transactions.
- In the future, the inclusion of pensions in the taxable estate from April 2027 may erode the residence nil rate band for many families, thus impacting their overall personal-finance planning strategy.
