HMRC inheritance tax investigations and enquiries

HMRC’s interest in an estate does not necessarily end when the inheritance tax account goes in, or when probate is granted. It can question values, reliefs and lifetime gifts later, and it writes to the personal representatives, who may know less about the deceased’s finances than anyone.

This guide explains how HMRC checks an inheritance tax (IHT) account, what an IHT enquiry focuses on, the powers and time limits HMRC works to, and where executors stand on penalties.

How HMRC checks an inheritance tax account

Where an estate needs a full account, the personal representatives deliver form IHT400, normally within 12 months from the end of the month of death. It covers the estate and the chargeable gifts made in the seven years before death.

HMRC then reviews the account. GOV.UK says that this may include the Valuation Office or HMRC’s Shares and Assets Valuation team checking any valuations provided. It also says that if you have not heard from HMRC 14 weeks after submitting the IHT400, no further checks will be carried out. That describes HMRC’s normal review process. It does not shorten the statutory time limits below, and it does not protect an account that left something out.

Unlike a Self Assessment return, an IHT account has no fixed enquiry window and no equivalent of the section 9A notice that opens a compliance check into an income tax return. HMRC simply writes with questions.

What an HMRC inheritance tax enquiry letter looks like

An IHT enquiry usually begins with a letter to the personal representatives, or to the solicitor or agent named on the account. It identifies the estate and sets out questions, often with a request for documents and a date for a reply: a valuer’s report and the instructions given to the valuer, the deceased’s bank statements for the years before death, or evidence behind a gift or a relief.

Letters at this stage are usually informal requests. They are still worth answering carefully, because the first exchanges tend to decide how wide the enquiry becomes.

What HMRC looks at in an IHT enquiry

Property valuations

For IHT, assets are valued at the price they might reasonably be expected to fetch on the open market at the date of death. For UK land and buildings, HMRC relies on advice from the Valuation Office Agency, whose District Valuer may consider a figure too low. An estate agent’s informal appraisal is a common weak point. A sale at full price to an unconnected buyer soon after death is usually strong evidence of value.

Unquoted shares

Shares in a private company are checked by HMRC’s Shares and Assets Valuation team, whose questions tend to concern the size of the holding, the company’s assets and profits, and any restrictions in its articles.

Lifetime gifts in the seven years before death

Gifts made in the seven years before death have to be declared, and HMRC often looks through the deceased’s bank statements for payments that were not. Where the gifts in that period exceed the nil-rate band, taper relief reduces the tax on a gift made between three and seven years before death. It reduces the tax, not the value of the gift.

Gifts out of income

The normal expenditure out of income exemption covers regular gifts that were made out of income, not capital, and left the deceased with enough income to keep up their usual standard of living. It has no cash limit, so HMRC tests claims closely, and they stand or fall on records of income and spending that executors often have to rebuild.

Gifts with reservation of benefit

A gift the deceased kept benefiting from, such as a house given to a child that the parent continued to live in rent-free, is treated as still part of the estate.

The residence nil-rate band

The residence nil-rate band of up to £175,000 applies where a home, or a share of one, passes to direct descendants. It tapers away for estates worth more than £2 million. The nil-rate band is £325,000, and both bands are frozen until 5 April 2031. HMRC checks who actually inherits the home and any claim to a late spouse’s unused band.

Business and agricultural property relief

These reliefs can remove large values from charge, so HMRC may ask whether a company was mainly trading or mainly holding investments, and whether land was genuinely occupied for agriculture. For deaths from 6 April 2026, the 100% rate applies only to the first £2.5 million of combined qualifying property, with 50% relief above that, and any unused allowance can pass to a surviving spouse or civil partner. Shares on markets designated as “not listed”, such as AIM, get 50% relief.

Undisclosed and offshore bank accounts

HMRC receives information about accounts held abroad from many overseas tax authorities, so an account left off the IHT400 is more likely to come to light than it once was. For deaths on or after 6 April 2025, worldwide assets are within IHT if the deceased was long-term UK resident, broadly UK resident for at least 10 of the previous 20 tax years. That test replaced domicile.

Jointly held assets

The share of a jointly owned asset that is included depends on who owned it beneficially and, for bank accounts, who put the money in. A joint account with a child may be fully the deceased’s for IHT if the deceased provided all the funds.

Looking ahead, for deaths on or after 6 April 2027 most unused pension funds and death benefits will also come within the estate for IHT.

HMRC’s information powers for inheritance tax

Since 1 April 2010, HMRC’s formal information powers for IHT have been those in Schedule 36 to the Finance Act 2008, the same powers used for income tax. They replaced IHT’s own powers in sections 219 and 219A of the Inheritance Tax Act 1984.

HMRC can issue a notice requiring information or documents reasonably required to check a tax position, in some cases from third parties. A formal notice is a legal requirement, and penalties can follow if it is not met. Some notices can be appealed, within a time limit, so a notice needs reading as soon as it arrives.

How far back can HMRC investigate inheritance tax?

The time limits are in section 240 of the Inheritance Tax Act 1984. Where tax was paid on the basis of an account that HMRC accepted, the normal limit is four years. The longer limits depend on behaviour:

Each period runs from the later of the date the tax (or its last instalment) was paid and the date it became due, so the clock starts with payment, not with the death. The twelve-year offshore limit, in section 240B, applies only to transfers from particular dates, and not where HMRC already had overseas information from which it could have found the problem. Where tax was not paid on the basis of an accepted account, for example because no account was delivered, a limit of 20 years from the date of the transfer can apply instead.

These limits govern the IHT itself. The deceased’s own income tax runs on different rules, covered below and in our guide to how far back HMRC can investigate.

Penalties and the executor’s position

Where an IHT account delivered for a death on or after 1 April 2009 contains an error that understates the tax, a penalty can be charged under Schedule 24 to the Finance Act 2007 if the inaccuracy was careless or deliberate. Penalties are a percentage of the extra tax and can be reduced for disclosure and co-operation. Our guide to HMRC penalties for careless, deliberate and concealed errors explains the ranges and reductions.

The central question for an executor is reasonable care. A personal representative who takes reasonable care is not penalised for an error. In practice that usually means:

• making the fullest enquiries that are reasonably practicable about the deceased’s assets and gifts
• using a qualified valuer where an asset is of material value, and giving them full and correct instructions
• asking questions where something does not add up

Relying on a professional valuation is often good evidence of reasonable care, but not automatically: HMRC may ask whether the valuer was properly instructed, and whether the executor knew something that cast doubt on the figure. Where an agent prepared the account, the personal representatives can still be liable for a careless error unless they show that they took reasonable care themselves.

Where family members supply the information, Schedule 24 allows a separate penalty on anyone who deliberately gives the executor false information, or withholds it, intending the account to be wrong. Personal representatives are liable for the tax itself, but broadly only up to the assets they received or would have received but for their own neglect or default.

Correcting an IHT account after it has been submitted

If the personal representatives find that the account was wrong in a material respect, such as an asset left out, a value too low or a gift omitted, they must deliver a corrective account within six months of discovering it, under section 217 of the Inheritance Tax Act 1984. In practice this is done on form C4.

An error that was not careless when the account went in is treated as careless if the person later discovers it and does not take reasonable steps to tell HMRC. Finding a problem and leaving it is therefore worse than the original mistake.

When the deceased’s own tax affairs were wrong

An IHT enquiry sometimes reveals income the deceased never declared, such as interest on an offshore account or rent. The personal representatives are responsible for settling the deceased’s income tax and capital gains tax as well as the IHT.

HMRC must assess personal representatives within four years after the end of the tax year of death. Where the loss of tax was careless or deliberate, it can reach back to tax years ending no earlier than six years before the death. Putting this right is usually done by a voluntary disclosure on the estate’s behalf, and the income tax owed is a debt of the estate, so the IHT account may need correcting too.

If HMRC has written about an estate

If an IHT enquiry letter has arrived, the deadline and the type of request come first. Executors who have found a problem themselves face a different decision: what to correct, and how quickly. You can send us a message, or read more about compliance checks.

Sources

• Inheritance Tax Act 1984, section 21 (normal expenditure out of income), section 204 (limitation of personal representatives’ liability), section 216 (delivery of accounts), section 217 (defective accounts), section 239 (certificates of discharge), sections 240, 240A and 240B (underpayments and time limits) and section 6A (long-term UK residence)
• Finance Act 1986, section 102 (gifts with reservation)
• Finance Act 2008, Schedule 36 (information and inspection powers), extended to inheritance tax by the Finance Act 2009, section 96 and Schedule 48
• Finance Act 2007, Schedule 24 (penalties for errors), paragraphs 1A, 3 and 18
• Finance Act 2019, section 81 (offshore time limits for inheritance tax)
• Finance Act 2026, section 65 (agricultural and business property relief), sections 66 to 71 (pension interests) and section 72 (rate bands for 2030-31)
• Taxes Management Act 1970, section 40 (assessments on personal representatives)
• HMRC, “How to value an estate for Inheritance Tax and report its value” and “Inheritance Tax: gifts” (GOV.UK)
• HMRC Inheritance Tax Manual, IHTM23002 (who values interests in land) and IHTM32191 (information notices)

This guide is general information, not advice on any particular case.