Why HMRC is increasing inheritance tax investigations and what it means for estates and trusts

Despite being almost universally hated, Inheritance Tax (IHT) makes up a very small percentage of the overall UK tax take, at around 0.7% of the total in any given year and it is still true to say that the vast majority families do not ultimately need to pay it, even with the value of the Nil Rate Band (NRB) having been frozen for over 17 years now.
However, recent statistics released in the press suggest that HMRC increased the number of investigations into IHT in 2024/25 by around 5% (based on the previous year’s figures) and recovered some £246 million in taxes as a result of those enquiries – tax that would otherwise have gone unpaid.

We understand that HMRC are using a number of tools to decide on where to raise an enquiry, looking beyond Land Registry records to the relatively recently introduced Trust Registration Service (TRS) and making the most of AI to target potential underpayments.

When is usually IHT due?

The most common reasons IHT may be due are when:

• Someone passes away and the value of their estate exceeds the tax-free allowances available to them – £325,000 NRB plus potentially a further £175,000 Residential NRB. Other allowances and exemptions include where an asset is left to a surviving spouse or a charity, or where the asset qualifies for Business Property Relief (BPR) or Agricultural Property Relief (APR), although note that these allowances will be capped from 6 April 2026 to £2.5million, from their current unlimited level.  The rate payable over an above the allowances and exceptions is 40% (or 20 % for some APR/BPR qualifying assets after 6 April 2026).
• When a trust reaches a 10-year anniversary and the capital value is higher than the available exemptions and allowances. The rate of tax payable is up to 6%
• When a trust makes a distribution of capital. The rate of tax payable is again up to 6% but usually much lower.

In all cases, the Executor or Trustee is obliged to calculate how much tax is due based on the value of the assets, and to report this to HMRC within 6 months of the end of the month in which the event happened. Any tax may then be due at the same time, or in some cases payable by instalment, depending on the nature of the assets.

What is HMRC interested in when it comes to IHT?

From our own experience, the most common area that HMRC are questioning is the valuation of Properties, and this is happening in relation to both Death Estates and Trusts.  The value of shares is also something HMRC may dispute, especially where heavy discounting has applied.

Unfortunately, investigations can be lengthy (and therefore costly), requiring valuations to be evidenced and supported.  It therefore important that before calculating an IHT liability, the valuations used have been properly considered, and ideally provided by a valuations expert.

Where an enquiry results in additional tax to pay, the interest rates payable on the tax are high – 4% above the bank of England Base Rate. And whilst penalties levied on IHT have historically been low, these too are creeping up, especially where HMRC believe that IHT has been deliberately under calculated.

And we suspect this is only the start of seeing increases in the annual amounts being collected from IHT.

When the TRS was introduced in 2017, it was clear that this would give HMRC a better insight into quite how many trusts there are, and what they own, and these insights will prompt them to enquire, if things seem “odd” when it comes to tax actually being paid. In addition, unlike at any time in the past, HMRC now have details of when they should be expecting 10-year charges to be submitted, and no doubt, they will use that information to ensure that these happen in a timely manner going forward!

If you need assistance with calculating IHT on either and estate or a trust, please do get in touch.