HMRC inheritance tax compliance investigations: What to expect and why they arise
Inheritance tax (IHT) compliance investigations are an increasingly common feature of estate administration, particularly where estates are complex or reliefs are claimed. Understanding how HMRC identifies potential issues, which areas attract the greatest scrutiny, and how long an enquiry is likely to last can help personal representatives navigate the process with confidence.
What constitutes an IHT compliance issue?
In simple terms, a compliance issue arises where HMRC considers that an estate has not been reported accurately. For IHT purposes, estates are reported to HMRC in one of two ways:
- Excepted estates, where a direct application for a grant of representation is made to the Probate Registry without submitting a full inheritance tax account, because no IHT is payable once available reliefs are applied; or
- Chargeable estates, where the personal representatives must submit a full inheritance tax account (form IHT400) setting out details of the estate assets, liabilities, lifetime gifts and any reliefs claimed.
Compliance enquiries in relation to excepted estates are relatively rare. That said, HMRC does monitor probate applications and retains the power to call for a full IHT400 if there are concerns that the information provided may be incomplete or misleading, particularly in relation to asset disclosure or valuations.
By contrast, once an IHT400 has been submitted, HMRC undertakes an initial review. Where HMRC considers there is a risk of underpaid tax, the matter may be referred to its compliance team. Such referrals commonly arise where the account appears incomplete, contains inconsistencies, includes assets that may have been undervalued, or claims reliefs to which the estate may not be entitled.
Common triggers for HMRC investigations
In our experience, HMRC scrutiny is most likely where tax reliefs are claimed, high-value or assets with subjective values are involved, non-UK domicile or long‑term residence is asserted, post-death variations are made to improve the inheritance tax position, lifetime gifts raise questions of a retained benefit, double taxation relief is claimed, or corrective accounts amend previously submitted values or reliefs.
HMRC now uses a combination of manual review and automated risk assessment tools, including data‑matching and AI‑assisted analysis, to identify areas where tax may be at risk.
How the IHT400 can generate enquiries
The IHT400 is a highly detailed return supported by multiple schedules. It is designed to prompt personal representatives to confirm what has happened to assets referred to in the will, whether all relevant assets have been reported, the basis on which property and other assets have been valued, and whether legacies have been correctly grossed-up for tax purposes.
The form also seeks to uncover lifetime arrangements that may still be relevant for IHT, such as gifts where the deceased retained a benefit, or changes to pension arrangements made shortly before death. Penalties may apply where errors arise from carelessness or deliberate concealment, underlining the importance of careful completion and appropriate professional advice.
Assets and reliefs under particular scrutiny
Certain areas attract sustained HMRC attention. These include claims for business or agricultural property relief, which are subject to strict statutory conditions, and valuations of property, businesses and chattels, which must reflect open market value at the date of death. HMRC frequently refers property valuations to the Valuation Office Agency and chattels to the Shares and Assets Valuation team.
Where worldwide assets are excluded on the basis of non-UK domicile or residence, or where lifetime gifts may involve a reservation of benefit, HMRC will often review the position carefully using information from other tax records.
How successful are HMRC enquiries?
Outcomes vary depending on the quality of the original return and the nature of the assets involved. HMRC tends to perform most strongly in property valuation cases, particularly where a later sale price exceeds the probate value. Many disputes are resolved through negotiation rather than litigation.
Challenges to valuations of specialist chattels such as artwork can be more difficult for HMRC due to the subjective nature of the market. Well‑reasoned expert evidence can significantly influence outcomes in these cases.
Why are investigations increasing?
Several factors appear to be contributing to increased HMRC activity, including a growing number of estates within the scope of IHT, greater reliance on non‑professional personal representatives, increased use of data analysis by HMRC, and economic pressures that can incentivise undervaluation or under‑reporting.
Future developments
Further increases in compliance activity appear likely as upcoming IHT reforms take effect, including changes affecting pensions and restrictions on agricultural and business reliefs. HMRC is also expected to increase scrutiny of cryptoassets as reporting frameworks develop.
How long do investigations last?
In our experience, IHT compliance investigations typically last between four and 18 months. Timescales depend on the scope of the review, the need for specialist valuations, and internal HMRC referrals. While delays are common, once matters are allocated to the appropriate compliance team, there is usually a clear focus on progressing the enquiry to conclusion.
How Forsters can help
We have extensive experience advising personal representatives, trustees and families on inheritance tax reporting and HMRC compliance investigations. We assist at every stage of the process, from preparing robust inheritance tax accounts and supporting valuations to managing enquiries once HMRC scrutiny begins.
Our private wealth and tax teams work closely with specialist valuers, accountants and other advisers to ensure that reliefs are claimed appropriately and that complex assets are reported accurately. Where investigations arise, we handle all correspondence with HMRC, coordinate responses across valuation, domicile, gifts and relief claims, and seek to resolve matters efficiently and proportionately, with a strong focus on managing tax exposure, penalties and costs.
