HMRC launched nearly 5,000 formal inheritance tax inquiries during the 2025/26 tax year, marking an 18% increase on the previous year. Officials are scrutinising bank statements for unreported gifts that may be liable for death duties and checking property data for potential undervaluation of estates. Nearly 5,000 more estates were referred for review before a formal investigation began.
Allowances and Gift Rules
In the UK, it is legal to gift any amount of money or assets, but gifts can trigger Inheritance Tax (IHT) depending on the estate's value, the recipient, the amount, and the timing of the donor's death. HMRC allows tax-free gifts through specific allowances: an annual exemption of £3,000, small gifts of up to £250 per person, and wedding gifts of up to £5,000. Amounts exceeding these are Potentially Exempt Transfers and are free of IHT only if the donor lives for seven years after giving them.
Expert Comments
Nikita Cooper of Price Bailey, which obtained the figures, said: "HMRC is coming under increasing pressure to clamp down on non-compliance and boost the tax take, and inheritance tax is becoming a higher priority. Many formal inquiries do not lead to any additional tax, but they still impose a significant administrative and emotional burden on families who have already complied with the rules."
David Wright of the Association of Taxation Technicians added: "HMRC have their data system Connect, which is a big spiderweb pulling data from lots of different places."
Fiona Fernie, a tax partner at Blick Rothenberg, said: "They will be looking to see if somebody who has reported relatively modest income is flying to Mauritius and the Maldives three times a year for their holiday."
Quastels, a legal advisory firm, stated: "There are many reasons that explain the rise in HMRC enquiries, which we run through in this article. Among them are frozen inheritance tax thresholds, rising property values over time, cross-border complexities (and ignorance as to these complexities) and increasingly complex family wealth. While these factors become more common, HMRC has also invested significantly in compliance and is placing greater emphasis on identifying inaccurate or incomplete returns. It is important to add, however, that a higher number of investigations does not necessarily mean more people are deliberately avoiding tax. In fact, many enquiries arise because HMRC requires further information before it is satisfied that an estate has been valued correctly. As mentioned above and throughout this article, the stress and work triggered by such an enquiry (even where tax has been paid accurately) can be prevented in the first place."
