The firm says there were 5,400 investigations into IHT returns in 2017/18, an increase from 5,100 the previous year.  If an investigation finds that IHT has been underpaid, the estate may have to pay all of the tax owed plus a penalty, which could be up to 100% of the tax at stake in the estate.

UHY Hacker Young adds that the number of estates liable for IHT rose 5% to 24,500 last year, up from 23,200 the previous year, as property prices continued to increase while IHT thresholds were frozen.

UHY Hacker Young says that the three areas that HMRC are likely to look into when they investigate an IHT return include whether the figures submitted accurately reflect market value - particularly in respect of residential property; whether any claims for business or agricultural reliefs are valid; and whether any assets have been omitted deliberately or due to lack of reasonable care.

It is likely that the area most likely to be queried by HMRC is the valuations of residential property that is passed onto heirs. In some cases, HMRC might argue that additional value should be attributed to properties that have potential for refurbishment, or development of any attached land.

UHY Hacker Young’s analysis also shows that a quarter (24%) of the total estates liable for IHT were investigated by HMRC in 2015/16, the latest year for which data is available.

Mark Giddens, partner at UHY Hacker Young, said: ‘HMRC are increasingly challenging the value of estates as investigating IHT returns becomes considerably more lucrative for raking in extra tax.

‘HMRC knows that there is a temptation to under-value residential property to save on IHT, as it is typically the largest figure on the return. The rise in investigations means more beneficiaries and estates, who may not necessarily be cash-rich, could be hit with hefty fines.’

Report by Pat Sweet