HMRC
Inheritance Tax
Investigations

Support for executors, personal representatives and families facing an HMRC compliance check into an inheritance tax account.

Inheritance tax enquiries are particularly difficult for the families involved. They arrive months, and sometimes years, after a death, at a point when the estate was assumed to be complete, and they fall on executors who acted in good faith on information that may not have been complete.

The point that most often catches people out is personal liability. An executor who submits an inaccurate IHT account can be liable for the additional tax and penalties personally, not simply as a call on estate funds that may already have been distributed.

Bracey’s handles IHT compliance checks from the first letter through to settlement. We have acted on many inheritance tax enquiries involving complex estates, including real estate and businesses needing valuations.

What HMRC examines

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Property valuations
The largest single area of IHT scrutiny. HMRC can refer valuations to the District Valuer, and a probate valuation that appears low against a subsequent sale price or comparable transactions will attract attention. A sale shortly after death at materially more than the reported figure is a reliable trigger.

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Lifetime gifts
The seven-year rule means that gifts made well before death remain relevant. Undisclosed gifts are a frequent source of enquiry, particularly where HMRC can identify them in bank records that the executors did not examine.

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Gifts with reservation of benefit
Most commonly, a parent who gifts the family home and continues to live in it. The gift is ineffective for IHT purposes and the property remains in the estate, an outcome that most families are often unaware of until HMRC raises it.

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Business Property Relief and Agricultural Property Relief
High value reliefs with detailed conditions. HMRC examines them closely, particularly where a business holds significant investment assets or where land use does not clearly meet the agricultural test.

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Trusts and offshore assets
Both attract scrutiny, and offshore assets carry an extended twelve-year assessment window.

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Undervalued or omitted chattels
Art, jewellery, classic cars and collections are frequently under reported, often simply because they were never professionally valued.

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Historic income tax positions
An IHT enquiry can bring to light unreported income during the deceased’s lifetime, which creates a second and separate issue.

Why HMRC opens IHT enquiries

Increasingly, the answer is data. HMRC cross references IHT accounts against Land Registry records, bank and investment data, and its wider Connect dataset. Discrepancies between the account and the information HMRC holds elsewhere generate referrals. Estates containing property, business interests, trusts, significant lifetime gifting or overseas assets are statistically more likely to be examined.

Penalties and executor liability

Penalties for inaccurate IHT accounts follow the standard behaviour-based regime. Careless errors attract penalties of up to 30% of the additional tax, and deliberate errors substantially more, with the maximum rising where the error is concealed and higher again for offshore matters. Interest runs on the unpaid tax from the due date.

Where an executor has already distributed the estate, they can be pursued personally for the shortfall. This is the situation we are most often asked to help, and it is the one in which early specialist involvement makes the greatest practical difference.

How we help

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Assessing the enquiry
Establishing what HMRC is questioning and what it is likely to have seen.

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Valuation challenges
Commissioning professional valuations and presenting this evidence to HMRC, including engaging with District Valuer opinions.

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Reconstructing gift histories
Working through bank records and correspondence to establish what was given, when, and whether it is chargeable.

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Defending reliefs
Building the evidential case for Business Property Relief and Agricultural Property Relief claims that HMRC has challenged.

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Mitigating penalties
The distinction between a careless error and an error made with reasonable care on incomplete information is significant, and it is frequently arguable.

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Protecting executors
Managing personal exposure, including where distributions have already been made.

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Voluntary disclosure
If you have identified an error before HMRC has, coming forward reduces penalties significantly, and it is worth acting promptly.

Frequently asked questions

How long after a death can HMRC open an enquiry?

HMRC ordinarily has a window running from delivery of the account, but discovery powers extend considerably further where the account was careless or deliberately inaccurate, up to twenty years for deliberate errors.

I am an executor and I believe a valuation was wrong. What should I do?

Take advice promptly and consider a voluntary disclosure. Correcting the position before HMRC identifies it materially improves both the penalty outcome and your personal exposure.