A Record Year for Inheritance Tax — and for Enforcement
Inheritance tax receipts reached a record of nearly £8.5 billion in the last tax year. What has received far less attention is how much of that money HMRC had to go and find. New figures show that investigations into underpaid inheritance tax have clawed back an additional £1.36 billion over the past five years.
That is not tax avoidance being unwound in the courts. In the overwhelming majority of cases it is ordinary families, dealing with a bereavement, who filed an inheritance tax account containing figures that HMRC later decided were wrong. The most common culprit is not a hidden offshore account. It is the value written next to the family home.
The Property Valuation Squeeze
When an estate includes property, the executor must state its open market value at the date of death on the inheritance tax return. HMRC does not simply accept that figure. Where it has doubts, it refers the valuation to the Valuation Office Agency — the District Valuer — for an independent opinion.
Those referrals rose by 23.5% in the year to September 2025, and the trend has continued. This is a deliberate policy shift: rather than auditing complex structures, HMRC is verifying the single biggest number on most returns. It is cheap to check, and the yield is reliable.
The reason it yields so well is that most executors under-value property, and they do it innocently. They use an estate agent’s marketing appraisal, an online estimate, or a round number that “feels about right”. None of those is a formal valuation. A £40,000 uplift on a house valued at £600,000 costs the estate an extra £16,000 in inheritance tax at 40% — plus interest, and potentially a penalty if HMRC concludes the executor did not take reasonable care.
Where Estates Get Caught
In our experience, the recurring problems are these.
1. The estate agent’s “quick figure”
An agent’s appraisal is a selling tool, and it is not prepared to the standard HMRC expects. For any estate that is likely to pay inheritance tax, obtain a written valuation from a RICS-qualified surveyor, prepared expressly for inheritance tax purposes at the date of death. It costs a few hundred pounds and it is the single best piece of evidence an executor can hold.
2. Selling for more than the probate value
If the house is valued at £550,000 for probate and sells nine months later for £610,000, HMRC will ask why. Sometimes there is a good answer — a rising market, competitive bidding, work carried out. But the sale price is public, HMRC sees it, and an unexplained gap invites an enquiry. Keep the paperwork that explains the difference.
3. Lifetime gifts that were never recorded
Executors must report gifts made in the seven years before death. Families frequently do not know they happened — help with a deposit, a wedding contribution, a car. Bank statements are reviewed, and unexplained transfers are questioned. A simple gift log kept during your lifetime removes this problem entirely.
4. Business and agricultural assets
From April 2026, Business Relief and Agricultural Relief are subject to a combined £2.5 million cap per person, with relief dropping to 50% above that. Claims are now scrutinised much more closely, because the amount at stake is quantified rather than unlimited. Trading status, the proportion of investment assets held in the company, and whether shares were held for the qualifying two-year period all need evidence, not assertion.
5. Chattels and valuables
Jewellery, art, classic cars and collections are routinely written down as “household contents — £3,000”. Where there are genuinely valuable items, a specialist valuation is required.
The Executor’s Personal Exposure
This is the part families rarely appreciate. The inheritance tax account is signed by the executor, and the executor is personally liable for getting it right. If HMRC later finds the estate under-declared, the executor is the person who receives the demand — for the tax, interest at the prevailing rate, and up to 100% of the tax as a penalty in the worst cases.
If the estate has already been distributed to beneficiaries, the executor may have to ask relatives to return money they have spent. Many discover that “reasonable care” is not a subjective standard. It means: did you obtain proper valuations, did you make proper enquiries, and can you show it?
How the Numbers Stand in 2026
- Nil-rate band: £325,000 per person, frozen to 2030
- Residence nil-rate band: £175,000, tapering where the estate exceeds £2 million
- Combined allowance for a married couple: up to £1 million
- Rate above the allowances: 40%
- Business Relief and Agricultural Relief: combined £2.5 million cap from April 2026, 50% relief above it
- Probate application fee: £526 from 13 July 2026
- From 6 April 2027: most unused pension funds fall inside the estate for inheritance tax
The proportion of UK deaths resulting in an inheritance tax bill is now at its highest level in almost twenty years. With allowances frozen and property values where they are, more ordinary estates cross the threshold every year — and every one of those estates is a return HMRC can check.
What to Do Now — While You Still Can
Almost everything that protects an estate from an inheritance tax enquiry has to be done before death, not after.
- Know your number. Value your estate properly today, including property, pensions (from April 2027), business interests and life policies not written in trust. Guesswork here is how families end up unprepared.
- Keep a gift log. Date, amount, recipient, and which exemption you are relying on. One page, updated as you go, saves your executors months of forensic work.
- Get business relief right in advance. If your company holds significant cash or investment property, its trading status may be weaker than you assume. That is fixable while you are alive.
- Write life policies in trust. Policies not in trust fall into the estate and can be taxed at 40% — a wholly avoidable cost.
- Review the structure of your home ownership. Joint tenancy passes the whole property to the survivor automatically, which can waste allowances and expose the family to sideways disinheritance.
- Leave your executors a file. Valuations, deeds, policy numbers, the gift log, and a note of who to contact. It is the difference between a nine-month probate and a three-year one.
The Bigger Point
HMRC has told us, through where it spends its resources, exactly what it intends to do: check the value of the family home, check the gifts, and check the reliefs. None of that is a reason to panic. It is a reason to make sure the numbers in your estate are defensible and documented while you are still here to explain them.
If you would like your estate valued properly and your inheritance tax exposure set out in plain figures, we can do that with you in a single meeting.