As HMRC cracks down on inheritance tax (IHT) investigations, HNWs should ensure their assets are thoroughly prepared, tax experts have told Spear’s.
Investigations into incorrectly paid inheritance tax brought in an extra £246 million for HM Revenue & Customs in the 2024/25 financial year, research from private wealth and family law firm TWM Solicitors has shown. The overall sum of inheritance tax collected by HMRC was approximately £8.25 billion, according to Statista.
In the 2025/26 financial year, these figures are expected to be even higher, with £9.1 billion forecast to be collected in IHT by the end of the year, the Office for Budget Responsibility predicted.
This comes as the government plans to expand the remit of inheritance tax, with HNWs expected to bear the brunt of many of these changes.
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Family businesses and farms worth over £2.5 million will only have assets protected from IHT up to that threshold. This follows changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), which once protected all agricultural and business assets from IHT. Under the new rules, assets worth up to £2.5 million will remain protected, but any holdings beyond that level will only be covered by 50 per cent APR and BPR, imposing a 20 per cent IHT rate. The changes are due to come into effect from 6 April 2026.
With these expansions in mind, HMRC can be expected to become more stringent in its IHT investigations as people attempt to avoid paying additional tax, argued private wealth lawyer David Lunn of TWM Solicitors.
‘HMRC’s investigations are becoming increasingly complex, particularly when it comes to residential property,’ Lunn said. ‘With tax rules growing ever more complicated, and the IHT net widening with each Budget, people need to ensure they obtain proper advice. Penalties can run into tens of thousands of pounds.’
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Lunn argued that individuals should pay close attention to their assets and identify which may fall within the scope of IHT.
Failing to declare goods has prompted countless IHT investigations in the past, he said. ‘HMRC is very strict about what must be included in an IHT return, so items such as jewellery or even a valuable set of dining chairs must be declared at their full market value.’
Many assets can be vulnerable to IHT, argued tax lawyer Natalie Butt at tax advisory firm Crowe.
‘Assets that do not give rise to Income Tax or Capital Gains Tax are often overlooked for IHT. This could include ISAs, offshore and onshore bonds that are not structured in an IHT-efficient manner, Venture Capital Trusts (VCTs), gilts and similar holdings,’ she said. ‘Additionally, as digital assets become more prevalent, cryptocurrencies and Non-Fungible Tokens (NFTs) are often unknown to executors and therefore overlooked.’
Those most vulnerable to IHT investigations are typically asset-rich but cash-poor, said Butt.
‘This can include those whose wealth is tied up in family businesses valued above the BPR allowances, asset-rich farmers, individuals holding substantial property portfolios either personally or through a company and, looking ahead to 2027, those with large pension pots but limited liquidity, particularly where investments are concentrated in commercial real estate,’ she said.
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Adding to this point, many remain uninformed about the importance of being able to pay IHT when it falls due, argued tax adviser Ann-Marie Atkins of Evelyn Partners.
She said: ‘Those with a lack of transparency and understanding of liquidity and how their estates would pay the tax – many are still unclear on basics such as the estimated liability and have their heads in the sand about what steps they can take to reduce or manage it better.’
Those most immediately affected by changes to IHT and HMRC’s increasingly forensic investigations are older individuals, added Butt.
‘The younger generation has time to plan, whereas the older generation will be most affected and therefore needs to be aware of what is coming down the track.’
One way to mitigate inheritance tax is through gifting, but this requires careful planning well in advance. In the UK, if the donor survives for seven years after making a gift of any size, it is treated as tax-free. However, if the donor dies within seven years, only up to £325,000 of the gift’s value is protected from IHT. Depending on the timeframe, any amount above this is subject to varying IHT rates, ranging from 8 per cent if death occurs six to seven years after the gift to the full 40 per cent rate if death occurs within three years.
Alongside changes to APR and BPR, pensions will fall within the scope of IHT from April 2027. While this may encourage individuals to access their pension earlier than they otherwise might, expert advice should be sought first, argued Akin Coker, a tax adviser at Buzzacott.
‘In terms of estate planning, previous advice has been turned on its head, especially in terms of the longstanding advice to leave pensions unused and draw on other sources first,’ he said.
He added: ‘With the changes coming in April 2027, many now believe it is better to draw on pension savings first, and we have already seen a number of clients begin to do this and make gifts to their children. However, this will not be the best option for everyone. Further thought needs to be given to factors such as the overall asset base and the income tax brackets the beneficiaries fall into.’
The standard nil-rate band of up to £325,000 will apply to pension funds, with any value above this threshold liable for the standard 40 per cent IHT rate.
‘HNWs and UHNWs are likely to be affected by unused pension pots falling within the scope of IHT,’ Coker added. ‘Historically, pensions sat outside the IHT net and were often preserved as an efficient wealth transfer vehicle. Bringing them into the death estate fundamentally changes that planning.’
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