Making sure your family is financially secure after your death is a key concern for many people. Yet even with careful planning, there’s a risk your beneficiaries could face unexpected tax charges if everything isn’t managed correctly.
A report in MoneyWeek found that HMRC investigations into underpaid Inheritance Tax (IHT) have increased by 41% in the past year.
If your estate is found to have underpaid, your beneficiaries could be left with a far higher tax bill and a possible penalty charge. Even if the investigation concludes that everything was paid, the process can be lengthy and frustrating.
Amid this heightened scrutiny, now is the time to review your estate plan to ensure it won’t be investigated and help protect your loved ones.
Read on to find out why investigations are increasing and what you can do to reduce the risk of being investigated.
Rising Inheritance Tax receipts lead to more investigations
As IHT revenues climb, so does HMRC’s focus on identifying potential cases of underpayment or avoidance.
According to Statista, IHT receipts reached approximately £8.25 billion in the 2024/25 tax year, the fourth consecutive annual record. This is Money notes that receipts could exceed £9 billion for the current tax year.
Moreover, there are several reforms to IHT on the horizon, including adjustments to Business and Agricultural Relief set for 2026 and bringing pensions into scope in 2027. These changes are likely to lead to even higher IHT receipts, and if recent trends are anything to go by, HMRC investigations will increase alongside them.
As such, the recent rise in investigations is unlikely to be a passing phase, and it’s important to get your estate in order to help your beneficiaries avoid scrutiny in the future.
What HMRC might examine during an investigation
When reviewing an estate, HMRC’s goal is to identify any errors, omissions, or signs that the declared figures don’t tell the full story. Some of the most common areas HMRC focuses on include:
- Undisclosed income – They may look at bank statements for evidence of income that hasn’t been declared but should be considered part of the estate. This could include investments, property, or significant foreign currency transactions.
- Unusual or last-minute transfers – Sudden or significant movements of assets, particularly close to the time of death, can raise red flags.
- Non-compliant gifts – HMRC carefully reviews gifts made within seven years before death to ensure they qualify for exemptions. They’ll also investigate “gifts with reservation of benefit,” such as giving away a home but continuing to live in it.
- Life insurance policies – Investigators may check for premium payments. If the policy wasn’t written in trust, its value might be counted as part of the estate.
- Property valuations – Understating a property’s value to reduce tax liability can lead to an investigation.
- Undeclared valuables – Items like jewellery, art, and collectibles must all be properly listed on the IHT return.
By examining these areas, HMRC aims to ensure that estates are reported accurately and that the correct amount of tax is paid.
4 ways to help ensure your estate isn’t investigated by HMRC
Even if an investigation doesn’t result in extra tax, it can still cause unnecessary stress for your loved ones. So, here are four steps you can take now to make things smoother for them and minimise the likelihood of an investigation.
1. Keep detailed and organised records
Maintaining clear documentation and records of any gifts, valuations, and transfers made during your lifetime is one of the best defences against suspicion.
Doing so ensures your financial affairs are transparent, clarifies what’s taxable, and makes it easier for your executors and advisers to handle your finances accurately.
It’s also a good idea to make sure that any professionals you work with are coordinating with each other. This might include your financial planner, solicitor, and accountant.
When everyone has a complete picture of your estate plans, there’s less risk of errors or inconsistencies that could trigger an investigation.
2. Avoid benefiting from assets you’ve given away
One common issue is giving a gift but continuing to benefit from it. This is known as a “gift with reservation of benefit”.
For a gift to be exempt from IHT, you must no longer benefit from it in any way.
For example, if you gift your home to your child but still live there, HMRC may treat it as part of your estate unless you pay a market-rate rent under a formal agreement.
A financial planner can help you structure gifts correctly to ensure they’re tax-efficient.
3. Plan in advance
Sudden transfers of wealth, especially close to death, can draw HMRC’s attention as it can look as if you’re attempting to avoid tax.
Conversely, by building your estate and legacy plans into your wider financial plan, you can make gifts gradually and within the rules, which can help reduce the chance of an investigation.
Doing this not only helps your beneficiaries but also ensures your gifting strategy doesn’t compromise your own security and aligns with your long-term goals.
4. Work with a financial planner
A financial planner can help you design an estate plan tailored to your goals while keeping you compliant with IHT rules.
They can adjust your plan as necessary based on any reforms, keep your legacy efficient, and help ensure your estate doesn’t get investigated after you die.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients 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, cashflow planning, or tax planning.
