It is often assumed that gifts made during a person’s lifetime, particularly in cash, remain invisible to HMRC unless they are disclosed. In practice, HMRC has wide access to financial data and uses a range of tools to identify undisclosed gifts when reviewing an estate for Inheritance Tax (IHT). Without proper records or advice, this can lead to delays, additional tax, or penalties when an estate is reviewed.

If I make gifts to my family, how would HMRC ever know?

This is a common question in estate planning conversations: if someone makes gifts to family members during their lifetime, particularly in cash, how would HMRC ever find out? The assumption is often that unless a gift is voluntarily disclosed, it may remain effectively invisible.

In reality, that assumption can be dangerously simplistic. HMRC has extensive investigative powers and access to multiple sources of financial information. When the estate reporting is completed, following a death, those powers are frequently used to test whether the information supplied by the personal representatives (PRs) is complete and accurate.

The PRs could be the executors of the estate, those named in the will, or appointed administrators where there is no will.

HMRC’s increasing focus on IHT compliance

As thresholds remain frozen and asset values rise, IHT receipts have increased and so has HMRC scrutiny, with a growing number of estates being investigated.

Responses to Freedom of Information requests suggest HMRC has opened thousands of investigations annually into potential underpayment of IHT. More than 14,000 enquiries have been launched since 2022, and almost 4,000 of those were in the 2025/26 tax year alone.

These investigations typically focus on three areas:

• Undisclosed lifetime gifts

• Undervalued assets, particularly property

• Missing or incomplete financial information

Where HMRC suspects estate reporting is incomplete, it will open a compliance check and request extensive documentation from PRs or advisers.

Bank account analysis

One of HMRC’s most common investigative tools is detailed analysis of bank accounts.

HMRC’s guidance to its officers emphasises the importance of analysing bank statements carefully to build a picture of the deceased’s financial affairs. This includes looking at both incoming and outgoing payments to identify unexplained transfers, income sources, or large withdrawals that may indicate undisclosed assets or lifetime gifts.

While HMRC may request bank statements from taxpayers or PRs after opening an enquiry, it does not need to rely solely on this. It also has statutory powers to obtain information directly from financial institutions and will often do so before it makes the decision to open an enquiry.

Furthermore, HMRC regularly receives information from foreign tax authorities, and a wide range of financial institutions which are required to report suspicious (which can often just mean large) transactions.

Income versus expenditure

Where HMRC obtains several years of banks statements, officers may carry out an “income and expenditure” analysis. This assesses whether spending aligns with known income.

For example:

• If someone consistently spends less than they earn but has no visible savings or investments, HMRC may question whether all assets have been disclosed.

• If the income was gifted, HMRC will then request evidence of those gifts.

The analysis is also used to test claims that gifts were made out of surplus income, which can be exempt from IHT. HMRC will then request evidence that those gifts were funded from excess income rather than capital.

Third-party information and data sources

HMRC increasingly relies on third-party data to build a full picture of an individual’s financial position.

This may include information from:

• Insurance companies

• Pension providers

• Suspicious Activity Reports made by regulated businesses

• Cryptocurrency exchanges

Undisclosed assets or transfers often leave traces in multiple sources, which HMRC can piece together.

Property and asset records

Property ownership and transfers are another key focus in IHT enquiries.

Land Registry records, property sales data, and mortgage information allow HMRC to verify ownership and valuations. If a property has been transferred or gifted before death, HMRC may review whether this was reported correctly and whether “gift with reservation of benefit” rules apply.

Other records may also reveal:

• Shareholdings and investment portfolios

• Insurance policies

• Business interests

• Valuable personal assets such as artwork or jewellery

Any mismatch between declared assets and external records may trigger further questions.

The responsibilities of the PRs

Ultimately, the responsibility for reporting an estate accurately, rests with the PRs.

The PRs must submit the IHT account, detailing the value of the deceased’s assets and any lifetime gifts. HMRC requires PRs to confirm that all reasonable enquiries have been made and that the information provided is complete and correct.

If issues are identified later, PRs may be required to:

• Provide additional information or documentation

• Submit revised accounts

• Pay additional tax and interest

• Pay penalties in some cases

For this reason, PRs are often advised to review financial records carefully, including several years of bank statements, to identify any gifts or transfers that should be disclosed.

How we can help

Our specialists can support you at every stage of the process.

This includes our Inheritance Tax specialists who advise on obligations and estate planning during a person's lifetime, as well as our Probate specialists who can manage the estate administration process, including the probate application, providing comfort and peace of mind that everything has been dealt with correctly.

If HMRC opens an enquiry, our specialist Tax Disputes and Investigations team can deal with HMRC on your behalf, helping to expedite the conclusion of the investigation and protect you from any penalties HMRC may look to charge.

If you would like advice on gifts or Inheritance Tax, or an HMRC enquiry, please complete the form below and a member of our team will contact you.