Inheritance Tax Investigations Have Hit a Six-Year High. Is Your Estate Ready?

Most people who talk to us about inheritance tax aren’t really worried about the bill. They’re worried about what their family will be handed: probate, valuations, paperwork and a letter from HMRC arriving while everyone is still grieving.

That last worry has become more reasonable. HMRC opened 4,940 formal inheritance tax enquiries in the 2025/26 financial year, according to freedom of information data from chartered accountants Price Bailey. That’s an 18 per cent rise on the previous twelve months, and the highest figure in six years.

In the same week, the new Prime Minister spent several days declining to rule out replacing inheritance tax with a flat levy on all estates. Those two pressures are landing on the same families.

Key Takeaways

• HMRC opened 4,940 formal inheritance tax enquiries in 2025/26, an 18 per cent rise and a six-year high.
• Frozen thresholds keep pulling more estates into inheritance tax, and the residence nil-rate band tapers away above £2 million.
• Andy Burnham’s social care speech on 29 July 2026 announced cross-party talks and a public consultation, but no funding mechanism.
• He declined to rule out a 10 per cent levy on estates. Downing Street has said there are “no plans” for one.
• From 6 April 2027, most unused pension funds fall within inheritance tax. That change is settled law.
• The sensible approach is to plan around the rules that are published and in force today.

Why is HMRC opening more inheritance tax enquiries?

The simplest explanation is that more estates are liable, so there’s more to check.

The nil-rate band has sat at £325,000 since 2009. The residence nil-rate band arrived later, for deaths on or after 6 April 2017, phased in from £100,000 to today’s £175,000 by 2020/21. Both are now frozen until the end of the 2030/31 tax year, and house prices haven’t stood still.

That’s where the £1 million figure for a couple comes from, and it carries conditions. The residence nil-rate band only applies where a qualifying home passes to direct descendants. It also tapers on larger estates, falling by £1 for every £2 the net estate exceeds £2 million. By £2.35 million it’s gone entirely.

HMRC still forecasts that over 90 per cent of estates will face no inheritance tax. Plenty around Poole and Dorset now sit near these lines without having planned for it.

Inheritance tax receipts reached a record £8.5bn last financial year. HMRC is also recruiting 5,000 extra compliance caseworkers, part of a push to raise £6.5bn more a year by the end of this Parliament.

One detail matters. Only 40 per cent of referred compliance checks led to any amendment, down from 45 per cent the year before and 83 per cent in 2021. More enquiries are being opened, and fewer are finding anything wrong.

Nikita Cooper, a director at Price Bailey, described the effect on families who had already filed correctly as a “significant administrative and emotional burden”.

What actually triggers an inheritance tax enquiry?

HMRC opens a formal enquiry when it thinks a return may be incomplete or inaccurate. It can then ask for documents, property valuations, correspondence and explanations from the executors or their adviser.

In practice, a few things attract attention more than others:

• Property valued at a round number with no supporting evidence behind it.
• Gifts made in the seven years before death that nobody recorded properly.
• Business Relief or Agricultural Relief claimed on assets that don’t clearly qualify.
• Foreign assets, or a share portfolio valued casually rather than at the date of death.

None of these mean anyone has done anything wrong. They mean the return contains a figure HMRC can’t easily verify, so it asks. The families who come through comfortably had their paperwork in order years earlier.

Could a death tax replace inheritance tax altogether?

It’s the question we’ve had most this fortnight, so let’s be precise.

Andy Burnham became Prime Minister on 20 July 2026. On 29 July he gave a speech on adult social care during a visit to a care home. He invited Kemi Badenoch and Ed Davey to begin cross-party talks that same day, and Baroness Louise Casey launched a public consultation called the Big Conversation on Care.

No funding mechanism was announced, and no tax, rate or threshold was named.

The reason people are asking is history. As health secretary under Gordon Brown, Burnham proposed replacing inheritance tax with a 10 per cent levy on all estates. Asked before the speech whether he was still considering it, he didn’t answer directly. He said instead that no party had the high ground on social care. A Downing Street spokesperson then said there are “no plans” for such a tax, and that the focus was on common ground rather than “imposing one particular solution or tax”.

So the denial came from a spokesperson, not from the Prime Minister. The idea went unmentioned either way in the speech itself. Casey’s first report is due later this year, with the final one deadlined for 2028. That report and the autumn Budget are the next points at which anything might firm up.

Our steer is the same as on any unlegislated proposal. Don’t rebuild an estate plan around it. Sound financial planning under today’s rules usually still looks sensible under tomorrow’s, and reversing a hasty decision is expensive.

What does the April 2027 pension change mean for your estate?

This one is different, because it’s settled.

Under the Finance Act 2026, most unused pension funds and death benefits now fall within your estate for inheritance tax. That applies where death occurs on or after 6 April 2027. HMRC published a technical note in May 2026 setting out how personal representatives and scheme administrators will share information.

Pensions passing to a surviving spouse or civil partner keep the spousal exemption, provided the beneficiary is a long-term UK resident. Dependants’ scheme pensions are excluded. So are death in service benefits, but only from the job you were in at the time, not an old scheme you’d left.

For anyone who has nominated children or grandchildren, the picture has shifted. If you built your approach around your pension sitting outside your estate, that assumption needs revisiting before April 2027. Checking your expression of wishes is the most useful hour you’ll spend on it.

What should you be doing now?

Keep records of gifts, with dates and amounts. Get a proper property valuation rather than an estimate. Make sure your executor knows where everything is. Review your pension nominations ahead of April 2027.

If your estate is likely to sit above the available nil-rate bands, talk to an independent financial adviser while there’s no deadline attached. The families who find this straightforward did the thinking early.

Talk to a Chartered Independent Financial Adviser in Dorset About Your Estate Plan

A half-formed worry about what your family will inherit, and have to handle, is uncomfortable to sit with. Working out where to start is the hardest part.

Baggette + Co. is a Chartered firm of independent financial advisers based in Poole, working with families across Dorset, Hampshire and further afield. We’re directly authorised and whole of market, so the advice you get is shaped by your circumstances rather than by anyone’s product range.

For estate planning, that means treating your pensions, property, investments and gifting history as one connected picture. We work alongside your solicitor and accountant so nothing falls between them. If you’re in the Preparation stage of your financial journey, joining it up now makes the most difference. That’s where a clear plan turns into peace of mind. To start a conversation, contact Oscar Hjalmas on 01202 676 983 or email advice@baggette.co.uk.

Frequently Asked Questions about Inheritance Tax Investigations

DISCLAIMER:

Baggette + Co. Wealth Management is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate tax planning, cashflow planning and estate planning. The above information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon as, financial advice. Capital is at risk. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement. Tax rules may change, and the value of tax reliefs depends on your individual circumstances.