How To Avoid Inheritance Tax Mistakes

According to new data, the number of Inheritance Tax (IHT) investigations opened by HMRC has reached a six-year high. Beverley Bowen, Director and Head of Lifetime Planning – Swansea and West, explains how to avoid making IHT mistakes which could trigger an investigation.

What Causes IHT Investigations?

In the 2025-2026 tax year, almost 5,000 (4,940) formal IHT investigations were opened, which represents an 18% increase on the previous tax year. The rise in investigations can be attributed to a combination of measures: the tax office faces increased pressure to boost takings and stamp out non-compliance, and recent Budgets have broadened the scope for which households are required to pay IHT.

Also, the relatively low threshold – frozen at £325,000 since 2009 – and changes to the IHT on agricultural and business property mean that more estates than previously are having to pay the tax. From 6 April 2027, most unused pension funds will also fall within the scope of IHT, potentially resulting in more estates paying the tax.

How Can I Avoid An IHT Investigation?

An HMRC enquiry can trigger months of paperwork, unexpected interest, penalties and additional tax bills, and so it is vital to understand exactly how much IHT you are required to pay at the outset.

Value Property Correctly

Usually, property is the largest asset in an estate. If a property has been undervalued, this is likely to trigger an IHT enquiry; HMRC may double-check a property if it is valued  below local market rates, if it was not professionally valued, if any development potential (such as outbuildings) was left out of the valuation, or if its comparable properties are sold at a much higher price.

To ensure you get your property valued correctly, select a qualified surveyor for an independent valuation.

Gifting Assets? Give Them Completely

Many people choose to gift significant assets – such as a holiday home, property, vintage cars or high-value artwork – during their lifetime as a way of reducing IHT. However, HMRC has ‘gift with reservation’ rules that must be followed.

This means that if you give legal ownership away to an asset, but you continue to use it, HMRC may still view that asset as your own.

For example, if you gift a holiday home but continue to use it (even infrequently), if you gift a car but keep it at your house, or gift your children your home but continue to live in it either rent-free or for below-market rent, HMRC will consider these assets as your property and they will be taxed as such.

If you are gifting assets for inheritance tax purposes, they need to be gifted wholly and completely: you cannot continue to benefit from those assets, unless you pay the market rate for the privilege.

Keep Records of Lifetime Gifts

Outright gifts to individuals that are not already exempt are generally known as Potentially Exempt Transfers (PETs). These become exempt from IHT if you survive seven years, provided you retain no benefit from the assets.

If you die within seven years, these gifts generally use up your £325,000 tax-free allowance before your estate. A £50,000 gift to a child could therefore leave £275,000 available, assuming no exemptions, other relevant gifts or additional allowances apply.

IHT is not automatically payable on the gift itself. Where IHT is due, taper relief may reduce it after three years, but does not reduce the allowance used.

Keep clear records of gifts, including dates, values, recipients and exemptions, so your executor can report them where required—even if no tax is payable. Different rules apply to gifts into trusts.

Keep Records of All Assets

When your executor completes the inheritance tax return, they will have to report everything you own. Keep clear, accessible records of all your assets such as bank accounts, investments, property and valuable items, along with supporting paperwork.

Keeping your records consistent – with clear notes on property and asset valuations – makes the process far smoother for your executor and for HMRC. Even small inconsistencies can trigger an HMRC investigation.

Remember to Record Overseas Assets

If you have international assets, it is also vital to keep this information up-to-date and accessible for your executor. Non-UK residents only pay IHT on UK-based assets, such as property and bank accounts, but long-term UK residents are taxed on their estate worldwide.

If you have foreign property, offshore accounts, international investments and/or non-UK trusts, these are all liable for IHT and a clear record must be kept for your executor.

You are classified as a long-term resident if you have been a UK resident for at least 10 years of the previous 20 tax years before the tax year of your death. So, every international asset must be declared for the IHT return, even if a double-taxation treaty means you will be able to claim back the international tax paid.

How Will My Executor Know if HMRC Opens an Investigation?

HMRC write a letter to any executor if they open a compliance check against an estate. The letter will explain the information they need to complete their enquiry.

It is important to note that receiving a compliance check does not mean your executor has made an error; many enquiries simply involve requests for clarifications or further information.

Executors can be held personally liable for returns submitted, and so they ought to take the time and care to check all facts and figures before completing the inheritance tax return.

A specialist Lifetime Planning Solicitor can guide your executor through this process, ensuring all documentation is provided and forms are fully completed.

If an enquiry is triggered, a Solicitor can also help your executor to gather the relevant information.

For expert advice and guidance, JCP Solicitors can help. Contact Beverley Bowen, Director and Head of Lifetime Planning – Swansea and West, on 01792 525458 or email beverley.bowen@jcpsolicitors.co.uk