HMRC has opened nearly 5,000 formal inheritance tax investigations during the 2025-26 tax year, a sharp increase driven by heightened scrutiny of gifts made to family members. The 4,940 enquiries represent an 18% rise compared to the previous year, with an additional 5,000 estates referred to HMRC's compliance team for review before any formal investigation begins.
Rise in Formal HMRC Enquiries
The crackdown comes as HMRC deploys its advanced data system, Connect, to cross-reference bank statements and property records for unreported gifts or undervalued assets. According to accountancy firm Price Bailey, which obtained the figures, the tax authority is under mounting pressure to close the inheritance tax gap and boost revenues. Nikita Cooper, a partner at Price Bailey, 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.'
Scrutiny of Gift Transactions
HMRC examines bank accounts for cash gifts that may exceed annual allowances, as well as property valuations that could misrepresent estate worth. Gifts that exceed the £3,000 annual exemption, the £250 small gift allowance, or the £5,000 wedding gift limit become Potentially Exempt Transfers, which escape inheritance tax only if the donor lives seven years after making them. David Wright of the Association of Taxation Technicians noted: 'HMRC have their data system Connect, which is a big spiderweb pulling data from lots of different places.'
Expert Reactions and Warnings
Fiona Fernie, a tax partner at Blick Rothenberg, warned that HMRC's data mining extends beyond bank accounts to lifestyle indicators. '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,' she said. Legal advisory firm Quastels added that frozen inheritance tax thresholds, rising property values, cross-border complexities, and increasingly complex family wealth are driving the surge in investigations.
Understanding Tax-Free Gift Allowances
HMRC allows tax-free gifts through specific annual allowances: £3,000 outright, unlimited small gifts of £250 per person, and wedding gifts up to £5,000 for children. Any gifts above these thresholds are Potentially Exempt Transfers, requiring the donor to survive seven years. Failing that, the estate must pay inheritance tax on a sliding scale if the donor dies within three to seven years.
Complexities Lead to Compliance Burdens
Many formal enquiries do not result in additional tax, but still impose a significant administrative and emotional burden on families, even those that have complied thoroughly. Nikita Cooper emphasized: '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.' Quastels advised that accurate record-keeping and timely professional advice could prevent the stress of an HMRC enquiry. 'The stress and work triggered by such an enquiry (even where tax has been paid accurately) can be prevented in the first place,' the firm stated.
