Inheritance Tax (IHT) is a primary concern for many families across the UK because frozen thresholds mean that more estates than ever trigger a tax charge.
Indeed, IFA Magazine reports that IHT receipts rose 61% between 2020 and 2025.
Additionally, upcoming changes to the tax treatment of pensions from April 2027 could mean that IHT bills rise even further.
Amidst this increase in the number of families paying IHT for the first time, HMRC has taken a more stringent approach to investigating estates to ensure the correct amount of tax is paid.
Figures from IFA Magazine also show that investigations into underpaid IHT rose to almost 4,000 in the 2024/25 tax year, bringing in an extra £246 million in tax.
In some cases, these investigations might uncover deliberate attempts to evade tax. However, in the complex tax landscape, it is easy to make mistakes that could lead to underpaying tax inadvertently.
Here are five common mistakes to avoid as IHT investigations are on the rise.
1. Failing to understand the tapering of the residence nil-rate band
When calculating how much IHT is due, the executor of your will must add up the total value of your estate and then apply the nil-rate bands, which are an IHT-free allowance.
As of 2025/26, you have a:
- £325,000 nil-rate band
- £175,000 residence nil-rate band when passing your main home to a direct descendant, such as a child or grandchild.
You can also pass your entire estate to a spouse or civil partner without IHT, and they inherit the unused nil-rate bands, meaning you may be able to pass on up to £1 million between you.
Any portion of the estate that exceeds these nil-rate bands is typically subject to 40% IHT, unless at least 10% of the net estate is left to charity, in which case IHT is 36%.
However, if the net value of your estate is £2 million or more, the residence nil-rate band tapers down. The tax-free allowance is reduced by £1 for every £2 that your estate exceeds the £2 million threshold.
Once the value of your estate is £2.35 million, you lose your residence nil-rate band altogether.
If the executor of the will overlooks this and calculates the IHT assuming the full residence nil-rate band applies, this could lead to an underpayment.
2. Not keeping records of gifts
Gifting wealth while you are alive could be a useful way to reduce the size of your estate and potentially mitigate a large IHT bill for your family.
When the executor of your will later calculates the IHT on your estate, they may be asked to provide evidence of gifts and when they were made, to prove that this wealth should fall outside of the estate.
Unfortunately, as reported by International Adviser, 45% of high-net-worth individuals said they did not have clear records of gifts. Of those people, 29% made a mental note of transfers, while 17% did not know how much they had given.
Without clear records, the executor of your will may not be able to prove that certain gifts should be IHT-free. As a result, HMRC may rule that they have underpaid tax and IHT is due on the gifted amounts.
3. Falling foul of the “gifts with reservation of benefit” rule
Misunderstanding the “gifts with reservation of benefit” rule is another common mistake when passing wealth to the next generation while alive.
This usually relates to property. It is a common misconception that you can put your home in the name of a beneficiary, such as your child, and use the standard gifting rules to mitigate IHT on the asset.
If you still live in the property, this is considered a gift with reservation of benefit, and the normal exemptions do not apply. Even if the property is no longer in your name, it will be considered part of your estate for IHT purposes.
Conversely, if you transferred ownership of the property to a child and then paid them rent at the average market rate, the home may be considered outside of the estate. However, this strategy may not be suitable in many cases.
It is important that you understand this rule and are clear on precisely which gifts are free from IHT. We can support you in navigating the complex IHT and gifting rules to help you avoid mistakes.
4. Undervaluing assets
If the executor of your will undervalues assets such as your home or certain personal possessions, they could underpay IHT. They could also miss certain assets when making their calculations.
Much of the responsibility here falls to the executor, and they must get up-to-date, reliable valuations, particularly for properties.
However, you can support them by providing all the necessary paperwork for bank accounts, investments, and pensions. Any information about the value of possessions, such as artwork or vehicles, could help them build a more accurate picture of your estate, too.
Working with a financial planner is beneficial here as we can help you gather and update your paperwork regularly, to make life as easy as possible for your executor.
5. Missing the payment deadline
The executor of your will must pay outstanding IHT by the end of the sixth month after you pass away. If they miss this deadline, they may be investigated and will likely pay interest on the debt.
Naturally, you cannot control whether they meet the deadline or not, but you can support them by getting your affairs in order to make the process of administering your estate as simple as possible.
Get in touch
If you have any questions about arranging your affairs, please get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.