Inheritance Tax was once perceived as a concern primarily for the very wealthy.
That perception is no longer accurate.
With frozen thresholds and sustained growth in property values, a far broader segment of society now finds itself within scope.
Recent figures demonstrate a clear upward trajectory in both HMRC investigations and tax receipts.
The financial implications for families can be significant, particularly where planning has not been undertaken in good time.
(Read Time: Approx. 5 minutes)
Topics Discussed:
- The rise in HMRC Inheritance Tax investigations and the impact of frozen thresholds
- Practical and compliant strategies to mitigate exposure to IHT
HMRC Launches Thousands of Investigations
During the first nine months of the current 2024 to 2025 tax year, HMRC launched 3,636 investigations into suspected Inheritance Tax underpayments.
This represents an increase of nearly 1,000 investigations compared with the same period twelve months earlier.
Freedom of Information data shows that since the 2022 to 2023 financial year, a total of 14,027 families have faced investigation by HMRC in relation to Inheritance Tax.
Of these, more than 1,800 cases remain active, with 13 investigations now approaching their fourth year.
While many enquiries conclude within six to twelve months, more complex estates can be subject to prolonged scrutiny.
Before the pandemic, HMRC typically examined up to 5,000 estates per year. The renewed level of activity signals a clear return to, and in some respects an expansion of, that compliance approach.
As we have previously seen in other areas of tax enforcement, including HMRC’s investigations into undeclared online sales and marketplace activity, HMRC possess extensive investigatory powers and is increasingly willing to use third party data to challenge underreported tax liabilities.
Substantial Investigatory Powers
Executors are legally responsible for calculating the value of the deceased’s estate and reporting the correct Inheritance Tax liability to HMRC.
The tax must be paid within six months of death. If it is not, interest accrues at 7.75 percent per annum.
Where HMRC suspects underpayment, it can analyse bank statements, review income patterns, examine foreign currency transactions and investigate potential undisclosed assets, including investments and property.
Valuation disputes are particularly common in relation to property and business interests.
Given rising asset values and frozen thresholds, it is not difficult to see why more estates are being drawn into the compliance net.
Record Breaking Inheritance Tax Receipts
Inheritance Tax is charged at 40 percent on the value of an estate exceeding the £325,000 nil rate band. That threshold has remained unchanged since April 2009 and is currently frozen until at least April 2028.
Where a main residence is passed to direct descendants, an additional residence nil rate band of £175,000 may apply.
Married couples and civil partners can combine their allowances, potentially shielding up to £1 million from Inheritance Tax, subject to eligibility and tapering rules.
Despite these allowances, government receipts have risen dramatically. In 2005, Inheritance Tax raised £3.3 billion. In the 2024 to 2025 tax year, receipts reached £8.2 billion.
This substantial increase reflects the combined effect of rising property values and tax-free thresholds that have remained static for years, drawing ever more estates into the tax net.
Even relatively modest wealth passed across generations can be significantly eroded where 40 percent charges apply repeatedly without structured planning.
Future Changes Will Broaden the Net Further
The position is likely to become more challenging.
From April 2027, pension savings will become subject to Inheritance Tax for the first time.
The Office for Budget Responsibility estimates that this change will affect approximately 50,000 estates through either increased tax bills or new exposure to the tax.
Looking further ahead, the Office for Budget Responsibility projects that by the 2030 to 2031 tax year, nearly one in ten deaths will result in an Inheritance Tax charge. This represents a doubling of the current rate of approximately 5 percent.
As more modest estates are drawn into charge, the average Inheritance Tax bill is forecast to fall from £233,200 this year to £186,800 within five years.
That decline in the average figure does not reflect lower tax rates, but rather a broader spread of liability across a larger number of estates.
In practical terms, Inheritance Tax is shifting from being a niche tax affecting a small minority to a mainstream consideration for many families.
Planning in an Era of Heightened Scrutiny
In this environment, informal or unstructured planning carries risk.
Lifetime gifting, trust arrangements and corporate structures may form part of an appropriate strategy, but each carries its own tax implications.
Gifting appreciating assets without careful analysis can trigger unintended Capital Gains Tax liabilities or fail to remove value effectively from the taxable estate.
Given HMRC’s increasingly proactive stance and extended investigation timelines, it is essential that any planning is robust, compliant and properly documented.
Reviewing existing arrangements is equally important. Planning that was appropriate several years ago may require adjustment in light of legislative change and evolving HMRC practice.
Summary
Since the 2022 to 2023 financial year, 14,027 bereaved families have faced Inheritance Tax investigations.
During just the first nine months of 2024 to 2025, HMRC opened 3,636 new cases.
Receipts have climbed from £3.3 billion in 2005 to £8.2 billion in 2024 to 2025, and from April 2027 pension savings will also fall within scope.
By 2030 to 2031, nearly one in ten deaths is projected to trigger an Inheritance Tax charge.
The nil rate band has remained at £325,000 since 2009. Property values have not. HMRC has substantial powers, extended enquiry windows and a clear appetite to challenge estates.
If you are alive and reading this, that is your opportunity. Inheritance Tax is no longer reserved for the wealthy.
For many families, it is a growing and very real exposure. Do not wait for HMRC to ask questions.
Get in touch with us for structured, professional Inheritance Tax planning advice and take control before it becomes a problem for those you leave behind.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
