How does HMRC investigate underpaid inheritance tax?

Dealing with a loved one’s estate can be difficult enough without HMRC questioning the paperwork.

But checks into inheritance tax (IHT) are becoming more common as more families are drawn into paying it. 

Since 2022, HMRC has opened more than 14,000 investigations into underpaid inheritance tax, according to a Freedom of Information request obtained by insurer NFU Mutual. More than 1,800 of those cases are still ongoing.

If you’re acting as an executor, or planning your own estate, here’s what could trigger an investigation and how you can reduce the risk of problems.

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When is an IHT bill due? 

Inheritance tax is charged on the estate of someone who has died. The estate includes their money, property and possessions, and most inheritance tax due must be paid before probate is granted and assets can be distributed.

Inheritance tax is usually charged at 40% on the value of an estate above the £325,000 nil-rate band. If a home is being passed to children or grandchildren, then an additional allowance of up to £175,000 applies. Couples can also combine their allowances to achieve a total tax-free portion of up to £1m.

From April 2027, unused pension pots will be included as part of an estate for IHT purposes. The Office for Budget Responsibility (OBR) estimates this change will bring an extra 50,000 estates into paying the tax.

By 2030, the OBR predicts that around 10% of deaths will result in an inheritance tax bill. This increase is linked to frozen thresholds, rising property prices and pensions being brought into scope.

However, the average IHT bill is forecast to fall from £233,200 to £186,800, as more smaller estates become liable.

• Find out more: inheritance tax: thresholds, rates and who pays

How does HMRC investigate underpaid IHT?

More investigations into underpaid IHT are being launched as more people are affected. Between April 2025 and January 2026, the tax office collected a record £7.1bn in IHT.

When a person dies, the executors of their estate are responsible for valuing it and telling HMRC how much inheritance tax needs to be paid.  Any inheritance tax due must be paid by the end of the sixth month after the month of death. After this point, interest is charged on any unpaid amount. 

If there appears to be an issue, HMRC will investigate. The tax office opens IHT investigations both for suspected deliberate tax evasion and for simple, honest mistakes.

Investigations can arise due to:

• Sudden wealth transfers: Moving large sums or changing complex estate structures shortly before death can look like an attempt to avoid tax, triggering an HMRC audit.
• Life insurance payouts: If the policy wasn't written in trust, that payout is added to your taxable estate.
• Property undervaluation: Using outdated or low-ball estimates for a home can be cross-referenced with Land Registry data.
• Unreported valuables: HMRC checks insurance records to ensure high-value items such as jewellery, furniture and art are declared.
• Gifts that break rules: While you can give away assets to reduce your estate's value, gifts made within seven years of death must be declared. HMRC also flags ‘gifts with reservation’, which is where you give away assets but continue to enjoy them.

The tax office usually informs individuals of an investigation by sending an ‘opening letter’ to the executors of the estate, stating they are conducting a compliance check. You are not typically notified when HMRC is looking into your tax affairs before this.

The letter usually requests further information for specific records, such as bank statements or professional property valuations, and often provides a deadline to respond. 

HMRC uses data-matching systems to cross-reference inheritance tax returns against other official records. Investigators can also scrutinise bank statements for signs of undisclosed income or large transfers made within seven years of death that may have been wrongly excluded.

A typical investigation lasts from six to 12 months, but complicated cases can carry on for several years. If extra tax is owed and it was due to a careless or deliberate error, then the penalties can range from 30% to 100% of the extra tax owed. 

• Find out more: inheritance tax planning and tax-free gifts

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More families reviewing their estate plans 

With more estates expected to face an IHT bill in the coming years, advisers say clients are increasingly reassessing how their assets are structured. 

Research from Standard Life found that 76% of financial advisers said their clients were concerned about the upcoming IHT changes, with 30% described these concerns as very high. Advisers said around 40% of clients will require a review of their existing estate plans, with 77% of advisers expecting their workload to rise ahead of April 2027.

In practice, this often means checking whether wills are up to date, reviewing how assets are owned between spouses or civil partners, and considering how pensions fit into wider estate planning once they become subject to IHT.

Some families explore options such as making lifetime gifts or leaving part of their estate to charity, which can reduce the overall tax rate. 

Others are looking more closely at trusts. HMRC data shows around 121,000 trusts were registered in the 2024-25 tax year, up from 115,000 the year before, bringing the total to at least 835,000. 

• Find out more: Inheritance tax and trusts explained 

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3 tips for managing an IHT bill

Dealing with inheritance tax can be complex and time-consuming. Taking a few steps in advance can make things easier for your executors and reduce the risk of delays or disputes.

1. Keep clear records

As you get older, it’s important that you get on top of your estate documentation. Try to keep clear and well-organised records of any gifts, valuations and transfers you make.

Alongside details of any overseas assets or investments, keep them in a safe place, with details included in your will. 

Having transparent records is key to showing what’s owed and what isn’t, and will help beneficiaries avoid making mistakes when sorting out any IHT owed. 

• Find out more: inheritance tax calculator

2. Don’t give gifts that you still benefit from

Gifting with ‘reservation of benefit’ is where people can fall foul of the rules. This is when you give a gift, but still continue to benefit from it. For example, if you gift your home to your child but want to keep living there, the property could still be liable for IHT.

It covers a wide range of scenarios, including receiving the income from an investment or keeping a gifted painting on your own wall.

To be tax-efficient, a gift must have no strings attached, so you must completely give up all benefits and control of it. 

• Find out more: inheritance tax on property

3. Get professional advice if you need

If you are unsure about how the rules apply to you, professional advice can help you understand your potential liability and avoid mistakes.

Advice may be particularly useful if your estate includes property, business assets or large gifts.

Some people appoint a solicitor or estate administration specialist as executor, although this can be costly. Alternatively, family members can act as executors and seek professional help only if needed, which may reduce costs.