HMRC Inheritance Tax Compliance Check UK (2026): What Triggers an Enquiry

HMRC's Inheritance Tax Compliance team reviews IHT returns (IHT400) and excepted estate declarations (IHT205/IHT207) to identify underpayments. Common triggers for a formal compliance check include: (1) Property valuation: the value declared for a residential property is materially lower than comparable sales in the area at the date of death. HMRC cross-references estate declarations with Land Registry sale prices and the Valuation Office Agency (VOA) database. A property declared at £400,000 where comparable street sales around the date of death were £480,000–£520,000 will attract scrutiny; (2) Substantial business or agricultural property relief (BPR/APR) claims: reliefs claimed on unlisted shares, farm land, or business assets are a common focus. HMRC will question whether the asset genuinely qualifies — land used partly for non-agricultural purposes; a company with substantial non-trading investment assets (exceeding 50% of total assets); properties that were let rather than farmed; (3) Large 'gifts' not declared: HMRC can see evidence of large bank withdrawals and asset disposals on the deceased's recent tax returns and bank records. If gifts within the 7-year taper relief period are not declared (or under-declared), this is a common trigger. HMRC also receives information from digital platforms and financial institutions; (4) Significant difference between the declared taxable estate and the deceased's apparent lifestyle or accumulated wealth on previous tax returns; (5) Offshore assets, foreign property, or foreign trusts not declared or under-declared; (6) Self-dealing by a trustee or executor where assets appear to have passed outside the estate; (7) An estate involving a discretionary trust where the 10-year periodic charge calculations appear to have been omitted or understated.

HMRC's ability to open a compliance check (enquiry) is time-limited, but the window is long: (1) Standard window — 4 years: under IHTA 1984 s.221, HMRC can give notice of an enquiry into an IHT return within 4 years of the later of: (a) the date the account was delivered to HMRC, or (b) the date by which the account was required to be delivered. For most estates, the IHT400 must be delivered within 12 months of the end of the month in which the death occurred. If HMRC does not open an enquiry within 4 years of receipt of the account, they are generally out of time; (2) Extended window — 20 years (TMA 1970 s.36 / IHTA 1984 s.240): where the failure to declare assets or under-valuation was the result of fraud or negligent conduct (carelessness), HMRC's enquiry window extends to 20 years from the date the account was delivered. 'Careless' in this context means failure to take reasonable care — not deliberate deception. An executor who simply did not check whether the deceased held foreign bank accounts may be treated as careless if those accounts were substantial; (3) Indefinite for deliberate non-disclosure: if HMRC can establish that an executor or beneficiary deliberately concealed information to avoid IHT, there is effectively no time limit. HMRC can assess and recover IHT indefinitely where fraud is involved; (4) The 'discovery' principle: even after the standard enquiry window, HMRC can open a check if new information comes to light that was not available when the account was submitted — for example, information from another taxpayer's investigation, a whistleblower, or data from a foreign tax authority. This is subject to the 20-year cap for carelessness and is unlimited for fraud; (5) Practical significance: the 4-year window means executors should retain all estate administration records (bank statements, property valuations, estate accounts, correspondence) for at least 5 years after the estate is administered.

An HMRC compliance check (sometimes called an enquiry or compliance review) is a structured investigation into the accuracy of the IHT return: (1) Initiating the check: HMRC writes to the executor (or their solicitor/accountant) notifying them that it is opening an enquiry under IHTA 1984 s.221. The letter identifies which aspects of the return are being questioned. This is distinct from a routine query (e.g., a request to confirm a specific asset value) — a formal enquiry notice triggers specific procedural rights and obligations; (2) Information requests: HMRC can formally require the production of information, documents, and returns under IHTA 1984 s.219A. This can include: probate valuations and RICS/surveyor reports; bank statements for the 7 years before death; details of all gifts and transfers within the 7-year lookback period; trust documents and accounts; the deceased's previous self-assessment tax returns; business accounts and balance sheets; third-party confirmation from banks, pension providers, or former employers; (3) HMRC's investigation tools: HMRC has access to: Land Registry records; Companies House filings; HMRC's own records from the deceased's lifetime tax returns; information from foreign tax authorities (via exchange of information agreements); financial intelligence from banks and platforms under the Common Reporting Standard (CRS); (4) Specialist valuers: HMRC's Shares Valuation division and the Valuation Office Agency can carry out their own independent valuations of shares, property, and businesses to challenge estate figures; (5) Resolution: most compliance checks are resolved by correspondence and negotiation — the executor provides additional evidence, explains the valuation basis, or agrees a revised value and settles any underpaid IHT with interest. Formal hearings before the Tax Tribunal are rare but possible where agreement cannot be reached; (6) Professional representation: where a compliance check has been opened, instruct a specialist tax adviser or solicitor with contentious IHT experience. HMRC's enquiry team has specialist knowledge — unrepresented executors are at a significant disadvantage in negotiating valuations and penalty positions.

Late payment of IHT and underpayments identified on compliance checks both attract interest and can attract penalties: (1) Interest on late payment: IHT is generally payable 6 months after the end of the month in which the death occurred (e.g., death in March 2026 = IHT due by 30 September 2026). Interest runs from that 6-month due date at the HMRC late payment rate, which in 2026 is 7.75% per annum (the Bank of England base rate + 2.5%). Interest is not a penalty — it cannot be reduced or waived. It accrues daily on all unpaid IHT. For a compliance check that reveals an underpayment, interest runs from the original 6-month due date, potentially accumulating for years if the enquiry is opened late in the 4-year window; (2) Interest on instalment payments: where IHT is being paid by instalments (on property or business assets), interest runs from the date each instalment was due, not from the 6-month deadline; (3) Penalties under IHTA 1984 s.247: penalties apply where an IHT account is fraudulent or negligent. The penalty is up to 100% of the IHT underpaid for fraud and up to 100% for negligence (with a maximum of £3,000 per document for less serious failures under s.248). HMRC's penalty regime for IHT uses a behavioural framework: unprompted disclosure (executor voluntarily corrects before enquiry): penalty 0–30%; prompted disclosure (corrects after enquiry opens but before HMRC demands payment): 15–30%; deliberate inaccuracy: 20–70%; deliberate and concealed: 30–100%. Penalties can be reduced for quality of disclosure — telling HMRC everything, helping HMRC understand the position, and giving HMRC access to documents all reduce the penalty within the range; (4) Surcharge: HMRC does not apply a separate surcharge on IHT in the way that income tax penalties work — the interest and s.247 penalties are the primary costs of underpayment.

Receiving an HMRC IHT compliance check letter is serious but manageable if handled promptly and professionally: (1) Read the enquiry letter carefully: identify exactly which items HMRC is questioning — a specific property value, a business relief claim, the omission of a gift, or a general review of the whole account. HMRC's enquiries are usually targeted; a wide-ranging 'general review' is less common; (2) Instruct a specialist adviser immediately: a tax solicitor, chartered tax adviser (CTA), or ICAEW accountant specialising in estate and IHT compliance. Do not respond to an HMRC compliance enquiry without professional advice — the initial response sets the tone for the entire investigation. The cost of representation is recoverable as an administration expense from the estate; (3) Gather and preserve documents: collect all original supporting documents for the challenged items — valuation reports, bank statements, solicitor correspondence, business accounts. HMRC can require production of these under s.219A and non-production is itself a default; (4) Do not destroy documents: once HMRC has opened an enquiry, destroying or concealing relevant documents can be treated as deliberate obstruction and significantly increases the penalty range; (5) Consider making an immediate voluntary disclosure: if the executor knows the return is inaccurate — for example, a property was conservatively valued — consider proactively providing the corrected figure and paying the additional IHT with interest before HMRC makes a formal demand. Voluntary disclosure attracts the lowest penalty range; (6) Respond within the deadline: HMRC's enquiry letter sets a response deadline (usually 30 days). Request an extension if needed — HMRC generally grants reasonable extensions for complex cases. Missing the deadline without explanation can be treated as non-cooperation; (7) Keep beneficiaries informed: beneficiaries who have already received a distribution may need to repay funds if the compliance check results in an additional IHT liability. Executors who have made distributions without retaining sufficient reserves to meet potential HMRC claims may face personal liability under IHTA 1984 for the additional tax.