Why HMRC Scrutiny of Inheritance Tax Returns Is Intensifying

Inheritance tax (IHT) compliance is becoming increasingly challenging, with HMRC adopting a more proactive and data-driven approach to reviewing estates. This shift is being driven by a combination of legislative change, increased complexity in estates, and enhanced analytical capability within HMRC.

A key driver of change is the evolving IHT landscape itself. Recent reforms to business property relief and agricultural property relief, alongside the transition from a domicile-based system to a long-term residence regime from 6 April 2025, have significantly widened the scope for technical disputes. In addition, internationally mobile families - particularly those connected with treaty jurisdictions such as India - are increasingly relying on treaty-based arguments to mitigate exposure to UK IHT on non-UK assets.

HMRC’s approach to risk assessment has also become more sophisticated. Alongside traditional caseworker review, HMRC now uses automated data-matching and analytical tools, including AI-assisted systems, to identify inconsistencies across tax filings and highlight estates with a higher perceived risk of underpayment or incorrect relief claims.

From a procedural perspective, the IHT form itself plays a central role in triggering enquiries. Amongst other things the form requires a detailed breakdown of assets, liabilities, lifetime transfers and any specific reliefs claimed, effectively creating a comprehensive audit trail of the estate. That information is routinely cross-checked against external datasets, both in the UK and overseas where relevant.

In practice, HMRC attention tends to focus on a few recurring themes. These include high-value estates, complex or subjective valuations, and claims that assets fall outside the UK tax net due to residence, domicile or treaty arguments. Relief-driven planning, particularly involving business or agricultural property relief, also remains a consistent area of focus. Similarly, post-death changes to the distribution of an estate and lifetime gifting arrangements that may involve retained benefit issues are all common triggers for review.

Valuation disputes also remain a particularly active area. Property values are frequently revisited where later sale prices suggest a higher market value at the date of death, while specialist assets such as private company shares or artwork may be referred to HMRC’s internal valuation specialists or external experts.

Although most IHT enquiries are resolved without formal proceedings, they can still take time. A typical enquiry may last several months, and more complex cases involving international structures or valuation disagreement can extend significantly beyond that.

It is therefore essential to maintain comprehensive supporting documentation. HMRC can request evidence long after the tax has been paid, in some cases many years later, so executors and families should retain copies of wills, valuations, business accounts, correspondence, and any agreements or records supporting relief claims or asset values.

Overall, the direction of travel is clear. As the IHT system becomes more technical and HMRC’s analytical tools become more powerful, estates involving relief claims, valuation sensitivity or cross-border treaty positions are increasingly likely to attract detailed scrutiny. In this environment, obtaining specialist professional advice is essential to ensure the position is correctly structured, properly evidenced, and defensible if challenged by HMRC.

How can Sanctuary help?

As HMRC scrutiny of inheritance tax returns becomes more targeted and data-led, families, executors and advisers need to ensure that estate positions are properly structured, clearly evidenced and defensible if challenged.

At Sanctuary, we help clients review inheritance tax exposure, assess relief claims, consider residence, domicile and treaty positions, and prepare supporting documentation for complex estates. Where valuations, business assets, agricultural property, lifetime gifts or international structures are involved, early advice can help reduce uncertainty and strengthen the position before an enquiry arises.

Visit our Tax & Advisory service page to find more about our tax & residency advisory services, or contact us for a bespoke consultation via the contact form or email us at: hello@sanctuary.ae.