Inheritance Tax (IHT) planning is a key component of financial planning, and ensuring compliance is becoming increasingly important as HMRC investigations are on the rise.
A report in MoneyWeek found that the number of investigations into underpaid IHT reached almost 4,000 over the course of the 2024/25 tax year, leading to additional charges worth just under £250 million.
Many IHT investigations are not triggered because the estate plan was designed to do anything illegitimate. Rather, it’s often because the right level of care and consideration wasn’t given while it was being created.
Even if the investigation finds you did nothing wrong, it can still cause delays and uncertainty for your beneficiaries at a time when security and stability are most important. So, it’s important to ensure your estate plan is compliant and properly documented.
Read on to find out why investigations are rising and what you can do to avoid one.
Advanced technology and increasing estate sizes have led to more investigations
The report in MoneyWeek found the recent increase in IHT investigations has been driven by developments in AI, data analysis, and related tools that allow HMRC to analyse tax records more effectively.
Alongside advancements in technology, rising values and frozen tax thresholds have resulted in larger estates and IHT revenues, which inevitably lead to more investigations.
The IHT nil-rate band has been frozen at £325,000 since 2009. Meanwhile, data from Cladco reveals that the average house price has increased by nearly £120,000 over the same period. Other asset prices have also increased considerably, which has pulled a larger portion of estates into the scope of IHT.
Indeed, further reporting from MoneyWeek notes that 2025/26 is set to be another record year for IHT revenue, which will reach around £8.5 billion. Recent changes to Business and Agricultural Relief, along with upcoming reforms to pensions and IHT, are also likely to further increase IHT receipts, which will undoubtedly prompt even more investigations.
Several common triggers can lead to an investigation
When an estate is being processed, a few common triggers can lead to an investigation. These include:
- Large gifts given shortly before death
- Undeclared income or assets
- Non-compliant gifts
- Estates near key thresholds
- Complex trust structures or estate planning strategies
- Undervalued property
While some of these are clearly in breach of the rules and will very likely lead to an investigation, such as undeclared assets or undervalued property, others may arouse suspicion and could trigger an investigation even if there was no wrongdoing involved.
5 steps that can help ensure your estate avoids an investigation
Taking preventative steps to reduce the likelihood of an HMRC investigation into your estate can help protect your beneficiaries from unexpected tax charges and delays in the probate process.
Here are five things you can do that could help.
1. Keep accurate records
Maintaining clear records of any gifts you give, asset valuations, and any transfers you make can help support the processing and assessment of your estate. It also demonstrates transparency, which shows you have nothing to conceal within your financial arrangements.
2. Make gifts early and avoid retaining any benefit
If you plan to use lifetime gifting to pass assets on, doing so sooner rather than later can help reduce potential tax issues further down the line.
Gifts made during your lifetime may fall outside your estate if you survive for seven years after making them. If not, the gift could still be liable for IHT and may lead to an investigation, depending on its size or timing.
It’s also important to note that you can’t continue to benefit from any gifts you give, as doing so may mean the gift is still liable for IHT. For example, if you give away a property but continue to live in it without paying market-rate rent, the property may still be treated as part of your estate.
3. Avoid last-minute changes
Making significant changes to your estate plan shortly before death, such as transferring assets into trusts, may raise suspicion, so it’s important to be well prepared and plan ahead.
Conversely, building your estate plan into your wider financial plan helps show that any decisions you made were part of your long-term goals you were preparing for.
Moreover, planning early tends to lead to more stable outcomes that closely align with your legacy wishes.
4. Review your plans regularly
Regular reviews of your estate plan can help ensure it continues to reflect the current rules, as well as your wishes and financial standing.
Significant life events, changes in wealth, and tax reforms can all affect how your estate will be treated, so it’s a good idea to review your plans every few years to ensure they remain up to date.
By doing this, your estate plan will remain aligned with your wishes as your life progresses, meaning you won’t need to make last-minute changes that could raise suspicion.
5. Speak to a financial planner
A financial planner can help you structure your estate plan to manage IHT, align with your goals, and avoid an HMRC investigation.
They can work with other professionals, such as your solicitors or accountants, to help ensure your financial and legal arrangements remain compliant and in alignment across the board.
By working with a financial planner, you can build an estate plan that is well-documented and implemented gradually over time. This can help reduce the likelihood of inconsistencies or changes that could lead to further scrutiny.
To speak to a financial planner, get in touch.
Email helpme@aspirellp.co.uk or call 0117 9303510 to find out more about what we can do.
Please note
This article is for general information only and does not constitute advice. The information is aimed
at individuals 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.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.
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