As Inheritance Tax investigations soar, here’s how to avoid HMRC scrutiny 

5 November 2025

HMRC investigated 41% more families that it believed had underpaid Inheritance Tax (IHT) in the 2024/25 tax year.

Information revealed by a freedom of information request, and reported in MoneyWeek, showed that HMRC opened 3,961 IHT investigations in 2024/25 compared to 2,807 the previous tax year.

A quick Inheritance Tax refresher

IHT only becomes due if the total value of assets you leave to loved ones exceeds £325,000 when you die.

Your estate won’t be taxed below this threshold, and there’s no IHT if you leave your estate to your spouse or civil partner, or an exempt charity or group.

In 2025/26, IHT is normally charged at 40%.

On top of the £325,000 tax-free allowance – or nil-rate band – there’s also a residence nil-rate band of £175,000 if you’re passing your main property to your children or grandchildren.

Both nil-rate thresholds are frozen until 2030.

If you’re married or in a civil partnership, any allowance you don’t use can be added to your partner’s allowance when they die. So, as a couple you could pass on as much as £1 million before your estate is subject to IHT.

Where IHT is due, it must usually be paid within six months of the death. However, if HMRC suspects IHT has been underpaid, it can investigate estate valuations going back as far as 20 years.

More families are expected to pay an Inheritance Tax charge

Frozen IHT thresholds and rising asset values mean your family is more likely to have to pay tax on an inheritance. Meanwhile, with HMRC being more vigilant, it’s essential that you plan to transfer your wealth with care.

Read on to learn more about what HMRC looks for and how you can proactively reduce the risk of an IHT investigation.

Where HMRC often looks for underpaid Inheritance Tax

When reviewing estates, HMRC focuses on several areas where underpayment of IHT commonly occurs. Understanding these could help reduce the risk of an investigation.

Undisclosed income

HMRC can request access to bank statements to identify income that may indicate hidden assets such as undeclared investments, property, or high levels of foreign currency transactions.

Sudden wealth transfers

Complex estate structures or last-minute movements of assets can attract attention. Significant changes close to death may lead HMRC to question whether the estate has been arranged to unlawfully avoid tax.

Gifts that break the rules

You can gift assets to family during your lifetime to reduce both the size of your estate and any IHT that may be due on your death.

While there are strict rules around the amount you can gift each year, undeclared or wrongly declared gifts may trigger HMRC scrutiny. Indeed, according to MoneyWeek, £61 million worth of gifts given to reduce an IHT charge broke HMRC rules in 2023/24.

In particular, gifts made within seven years of death and subject to taper relief rules are a frequent source of error.

Inaccurate or incomplete records of past gifts can also prompt closer inspection.

HMRC also examines whether gifts were genuine – for instance, where someone transfers ownership of a property but continues to benefit from it. If you give a “gift with reservation of benefit” the property remains part of your taxable estate. More on this later.

Life insurance premiums

Regular premium payments shown in bank statements may indicate a life insurance policy. If the policy isn’t written in trust, a payout could increase the value of the taxable estate.

Property undervaluation

Deliberately or mistakenly undervaluing a property, using outdated or misleading valuations, is a red flag for HMRC investigation.

Unreported valuables

Cash, jewellery, art and other valuable possessions must be declared. HMRC has also been known to review contents insurance documents to identify items left unreported on IHT returns.

3 proactive steps you can take to avoid falling under HMRC’s spotlight

1. Maintain scrupulous records

Keeping clear records of valuations you may have carried out or gifts you make during your lifetime could help your family and loved ones avoid unnecessary scrutiny after your death.

Transparency and preparation are key – and could help establish whether IHT is owed.

If you’re making regular gifts from surplus income, meticulous record-keeping is even more essential.

The designated HMRC form IHT403 could be useful to both organise your records and make life easier for your executor later.

Paying a little more attention now could help reduce the chance of your beneficiaries being charged an unexpected penalty.

2. Don’t give gifts that you’re still benefiting from 

As mentioned above, many people fall foul of gifting with “reservation of benefit”, which covers a range of scenarios where you could continue to benefit from things you’ve given away.

This might include:

• Continuing to live in a property
• Receiving the income from an investment
• Keeping physical possession of an item, such as a painting still hanging in your home. 

If you wish to make a tax-efficient gift, it’s crucial that you’ll no longer receive any benefit at all.

While a true gift doesn’t normally come with conditions, it is possible to put arrangements in place to avoid falling into this potential trap.

For instance, if you want to gift the family home to your grownup child but continue to live in the property yourself, be sure to put a formal rental agreement in place.

You’ll also need to ensure you pay commercial rent and regularly review the price you’re paying so it remains appropriate and matches market conditions.

3. Seek advice from a financial planner

A professional financial planner can help safeguard your legacy. They can help you create an estate plan and make sure both your decisions and actions reduce a potential IHT charge, potentially helping you avoid making mistakes that could cost your beneficiaries later.

We can also use cashflow modelling software to project how much your estate is worth today versus how much it may be worth at the end of your life.

Not only could this give you a clearer idea of how much IHT your loved ones might pay when you pass away, but it could also help you understand how much of your wealth you could gift during your lifetime without impacting your own financial security.

Get in touch

To find out more about how we can help you create a robust estate plan and protect your legacy from HMRC scrutiny, please get in touch.

Email info@depledgeswm.com or call 0161 8080200.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, or tax planning.