HMRC 'can investigate' if families make crucial mistakes

HMRC 'can investigate' if families make crucial mistakes Six common errors that can put an estate under greater scrutiny Families have been warned that simple mistakes over their finances could leave loved ones facing an HMRC inheritance tax investigation after their death. Six common errors that can put an estate under greater scrutiny – from undervaluing the family home to failing to declare gifts and overseas assets - have been identified by money experts at Which? The warning comes after HMRC opened 4,940 formal inheritance tax investigations during 2025-26 – an 18% increase on the previous year and the highest number in six years. Almost another 5,000 estates were referred to HMRC's compliance team for review before a formal investigation was opened. The figures were obtained by NFU Mutual through a Freedom of Information request and reported by Which?. An HMRC enquiry can mean months of paperwork, requests for financial records and potentially unexpected tax bills, interest or penalties. But an investigation does not automatically mean anyone has done anything wrong. Which? says 60% of compliance checks resulted in no changes. The crackdown comes as inheritance tax receipts hit a record £8.5billion in 2025-26. The £325,000 inheritance tax threshold has also remained frozen since 2009, while rising property prices have pulled more estates into the tax net. 1. Undervaluing your home Property is often the biggest asset in an estate, making its valuation a major area of scrutiny. Which? says HMRC may investigate where a property is valued well below local market rates, has not been professionally valued, has development potential or appears inconsistent with comparable sales. Money experts at Which? recommend an independent valuation from a qualified surveyor, providing evidence if HMRC later challenges the figure. 2. Failing to keep records of gifts Large gifts can have inheritance tax consequences for years. Under the seven-year rule, significant gifts can potentially fall outside an estate if the giver survives seven years. If they die sooner, the gift can become liable for inheritance tax. Qualifying lifetime gifts also need to be taken into account when calculating the use of the £325,000 tax-free allowance. Which? advises keeping records of significant gifts, including when they were made, who received them and their value. 3. Giving something away – but continuing to enjoy it HMRC's 'gift with reservation' rules can catch people who give an asset away but continue benefiting from it. For example, giving a home to children but continuing to live there rent-free could mean the property is still treated as part of the estate. Similar problems can arise with gifted holiday homes or valuable possessions that remain in the original owner's use. Which? says people generally need to stop benefiting from an asset – or pay the appropriate full market rate where applicable – if they want it removed from their estate. 4. Losing track of assets Executors cannot declare assets they do not know exist. Which? warns that even an innocent omission could cause delays or questions from HMRC. Keeping an up-to-date record of bank accounts, investments, property and valuable possessions, along with supporting paperwork, can make the process much easier. 5. Leaving contradictory paperwork Inconsistent information can also attract scrutiny. Which? warns that discrepancies between property valuations, asset values and supporting documents could raise questions. Keeping financial records organised and regularly updated can help executors provide HMRC with a consistent picture of an estate. 6. Forgetting assets held abroad Overseas property, bank accounts and investments can complicate inheritance tax affairs. Which? warns that long-term UK residents can be liable for IHT on their worldwide estate, including foreign property, offshore accounts and overseas investments. Under rules introduced in April 2025, someone is generally treated as a long-term UK resident if they were UK tax resident for at least 10 of the previous 20 tax years before the tax year of their death. Executors should therefore know about overseas assets and where the relevant paperwork is kept. The pension timebomb There is another major change families need to prepare for. From April 6, 2027, most unused pension funds and pension death benefits will be brought into the value of an estate for inheritance tax purposes. (gov.uk) The Government estimates around 10,500 estates could face an inheritance tax bill where they would previously have escaped it, while a further 38,500 estates could pay more tax. For affected estates, the average additional inheritance tax liability is estimated at around £34,000. The changes mean families should make sure executors know about all pension arrangements and can find the relevant paperwork. What happens if HMRC investigates? An HMRC compliance check does not automatically mean fraud or wrongdoing. Which? says many enquiries simply involve requests for further information before HMRC is satisfied an estate has been valued correctly. Executors should read any HMRC notice carefully, gather the relevant records and, where an estate is complicated, consider specialist tax or probate advice. With inheritance tax receipts at record levels – and pensions about to be brought into the net – Which? says keeping clear, accurate financial records is more important than ever. More information here.