Recent analysis shows there has been an increase in estate investigations by HMRC into inheritance tax (IHT) underpayments in 2017-18. There were 5,400 investigations carried out in 2017-18, a rise from 5,100 investigations in the previous year. It is reported that these figures represent almost a quarter (24%) of all taxable estates being investigated by HMRC and an increase of 5% from the earlier tax year.

Evidence indicates that it's likely that residential property valuations are most likely to be queried by HMRC, with potential district valuer involvement. With the increase in the number of estates holding residential property it's unsurprising that this area is attracting attention. Properties of particular interest might be those with development or refurbishment potential, and any property attracting business property or agricultural property relief would still remain in the spotlight.

If an investigation finds that IHT has been underpaid, the estate may have to pay all of the 40% tax owed, plus a penalty which could be up to 100% of the tax at stake. Interest will also be charged on unpaid amounts. A rising property market means that the amount of IHT penalties and interest can prove to be significant.

The increase in investigations into estates with residential property should encourage the involvement of a professional in the provision of a valuation in cases where inheritance tax is a consideration.