The number of Inheritance Tax (IHT) enquiries jumped by over a third (38 per cent) in the past year, according to data obtained by Price Bailey, the Top 30 accountancy firm.
According to data obtained from HMRC, there were 4,171 formal IHT enquiries in 2024/25, up from 3,028 in 2023/24. The number of IHT enquiries in 2024/25 was still below the pre-pandemic highs when HMRC routinely undertook more than 5,000 enquiries every year.
Number of formal IHT enquiries opened by HMRC
Price Bailey points out that at the same time as formal enquiries have surged, the proportion resulting in amendments to IHT returns has fallen. The 4,171 formal IHT enquiries in 2024/25 resulted in amendments to 1,885 returns, just 45 percent. This compares to 69 percent in 2023/24 (2,094 amendments out of 3,028 enquiries) and 84% in 2022/23 (2,645 amendments out of 3,163 enquiries).
According to Price Bailey, the declining proportion of formal enquiries resulting in amendments to tax returns suggests that many of the new staff recruited into HMRC’s Customer Compliance unit in recent years are struggling to get to grips with the complexities of IHT. The number of customer compliance staff has increased by 17 percent since 2018/19, from 23,342 to 27,226 in 2023/24.
Nikita Cooper, Director at Bailey, comments: “HMRC is coming under increasing pressure to clampdown on non-compliance and boost the tax take as the Government seeks to balance fiscal responsibility with economic growth.”
“After the lull in activity in recent years, HMRC is now ramping up scrutiny of returns and this upward trend is expected to continue as more estates are caught in the inheritance tax net.”
She adds: “HMRC is becoming less discriminate in the inheritance tax returns it is enquiring into as it casts its net wider. Less than half of enquiries resulted in any tax uplift, which suggests that the customer compliance team need to take a more targeted approach. This is unfair on the taxpayers who are coping with bereavement and doing the right thing by making full and accurate disclosures.”
Price Bailey points out that, unlike most other taxes, IHT tax returns need to be sent to HMRC on paper for manual processing by agents.
Nikita Cooper says: “The IHT reporting system is very archaic, with paper forms being processed manually. By stepping up the number of formal enquiries, HMRC’s strike rate has fallen off a cliff. The system is so backward that HMRC can’t even tell us how much tax was collected from these enquiries. In an increasing number of cases, the answer is almost certainly nothing.”
According to Price Bailey, with the thresholds at which estates are eligible to pay IHT being frozen and not accounting for rising property prices and inflation, the number of individuals needing to file IHT returns is likely to increase. Additionally, the impending changes for farmers and business owners, with the restriction of certain IHT reliefs (namely Business Relief and Agricultural Property Relief), as well as pensions being brought within the scope of IHY from 6 April 2027, will significantly increase the amount of IHT being collected by HMRC.
Nikita Cooper says: “We are likely to see much greater emphasis on compliance as the number of estates eligible for inheritance tax and the amount collected rises sharply in the coming years. The current paper-based filing system is already buckling under the strain and HMRC will need to get much better at sifting out inaccurate returns from those who are doing the right thing.”
