Do I Need to Report a Gift to HMRC for Inheritance Tax

At Towerstone, we provide specialist Inheritance Tax accountancy services for families and executors. We have written this article to explain reporting expectations and what records to keep, helping you make informed decisions.

This is a question I hear constantly and in my opinion it is one of the most misunderstood parts of inheritance tax in the UK. People often assume that every gift must be reported to HMRC immediately or that HMRC somehow tracks gifts automatically. Others believe the opposite and think gifts never need to be reported at all.

From experience, both assumptions cause problems.

The truth sits somewhere in the middle. Some gifts never need to be reported. Some gifts only need to be reported if the person who made them dies. Others need to be declared even while the person is alive. Understanding which is which makes a huge difference to peace of mind and future tax outcomes.

In this guide, I am going to explain when a gift needs to be reported to HMRC for inheritance tax purposes, who is responsible for reporting it, how and when reporting actually happens, and what records you should keep even if no immediate report is required. I will also share the most common mistakes I see and what I advise clients to do in practice.

What Counts as a Gift for Inheritance Tax?

Before we can talk about reporting, we need to be clear on what HMRC considers a gift.

For inheritance tax purposes, a gift is any transfer of value from one person to another where full market value is not received in return.

This includes:

Giving cash to family members or friends

Transferring property or a share of property

Selling assets at less than market value

Paying someone else’s bills

Writing off a loan

Adding someone to a bank account in certain circumstances

From experience, people often focus only on large or obvious gifts like houses. Smaller gifts and indirect transfers are frequently overlooked.

HMRC guidance on gifts is published by HM Revenue & Customs and accessible through GOV.UK.

Do You Have to Report a Gift as Soon as You Make It?

In most cases, no.

This surprises a lot of people.

For inheritance tax purposes, gifts made during your lifetime do not usually need to be reported to HMRC at the time they are made. There is no routine form you submit every time you give money to a child or grandchild.

In my opinion, this is where confusion begins. People assume that because inheritance tax is involved, HMRC must be notified straight away. That is generally not how the system works.

Instead, gifts are usually reported later and only in certain circumstances.

When Gifts Do Need to Be Reported

Gifts usually need to be reported when someone dies and their estate is being administered.

At that point, the executor or administrator must report gifts made in the seven years before death if they are relevant for inheritance tax.

This is done as part of the inheritance tax reporting process rather than through a standalone gift declaration.

From experience, this is where problems arise because families often have incomplete records or conflicting memories about what was given and when.

The Seven Year Rule Explained

Most lifetime gifts fall under the category of potentially exempt transfers.

This means:

If you survive seven years from the date of the gift, it usually falls outside your estate for inheritance tax

If you die within seven years, the gift may become chargeable

The key point is timing.

Gifts made more than seven years before death usually do not need to be reported at all because they are outside the inheritance tax net.

Gifts made within seven years of death usually must be reported as part of the estate.

Who Is Responsible for Reporting Gifts?

This is another area that causes confusion.

While you are alive, you do not usually report gifts to HMRC for inheritance tax.

After death, responsibility shifts to the executor or administrator of the estate.

Their role includes:

Identifying gifts made in the seven years before death

Establishing their value at the time they were made

Determining whether any exemptions apply

Reporting them to HMRC on inheritance tax forms

From experience, executors often underestimate how much work this involves.

How Gifts Are Reported to HMRC

Gifts are reported using inheritance tax forms such as IHT400 and associated schedules.

These forms ask for details including:

Date of the gift

Value of the gift

Who received it

Nature of the asset

Whether any exemptions apply

This information allows HMRC to assess whether inheritance tax is due and if taper relief applies.

There is no separate gift reporting system outside of this process for most people.

Gifts That Are Immediately Exempt and Never Reported

Some gifts are exempt from inheritance tax regardless of timing. These gifts usually never need to be reported.

Common exemptions include:

The annual exemption currently £3,000 per tax year

Small gifts up to £250 per person per tax year

Normal expenditure out of income

Gifts between spouses or civil partners

Gifts to UK charities

Gifts to political parties

From experience, the normal expenditure out of income exemption is one of the most powerful and least understood.

Normal Expenditure Out of Income

Gifts made from surplus income rather than capital can be exempt immediately.

To qualify:

The gifts must be made regularly

They must come from income not savings

They must not affect your standard of living

Examples include regular payments to help children with living costs or school fees.

In my opinion, this exemption is underused because people do not keep the right records.

While these gifts do not usually need to be reported immediately, they may still need to be explained to HMRC after death. Good documentation makes this much easier.

Do You Need to Tell HMRC About Large Cash Gifts?

Not at the time you make them in most cases.

Giving a large sum of cash to a child does not automatically trigger a reporting requirement.

However:

The gift should be recorded privately

Bank statements should be retained

Dates and amounts should be noted

Any intention should be documented

From experience, the issue is not making the gift but proving what it was later.

What About Gifting Property?

Gifting property does not usually need to be reported immediately for inheritance tax.

However, property gifts often trigger other taxes such as capital gains tax which do require reporting during your lifetime.

This is where people get confused and assume inheritance tax reporting is also required.

For inheritance tax, property gifts are treated like other lifetime gifts and usually only reported if death occurs within seven years.

Gifts With Reservation of Benefit

If you give something away but continue to benefit from it, HMRC may treat it as a gift with reservation of benefit.

Common examples include:

Gifting a house but continuing to live in it rent free

Gifting assets but retaining income from them

In these cases, the asset may still be treated as part of your estate.

From experience, gifts with reservation often still need to be disclosed on inheritance tax forms even if made many years earlier.

What Happens If Gifts Are Not Reported?

Failing to report relevant gifts can cause serious issues.

Possible consequences include:

Additional inheritance tax

Interest on unpaid tax

Penalties

Delays to probate

HMRC enquiries

Stress for executors and beneficiaries

From experience, HMRC is far more understanding where mistakes are genuine and disclosed promptly than where information appears to be withheld.

How HMRC Finds Out About Gifts

Many people assume HMRC will never know about gifts.

In my opinion, this is risky thinking.

HMRC may become aware through:

Bank records

Property transactions

Probate valuations

Information from beneficiaries

Routine estate checks

Targeted enquiries

HMRC does not need to know about every gift immediately to act later.

Keeping Proper Records of Gifts

Even if you do not need to report gifts now, you should keep records.

I always advise clients to maintain a simple gift log including:

Date of gift

Amount or value

Recipient

Reason for the gift

Source of funds

Whether it was from income or capital

This single step can save families months of work and anxiety later.

Gifts and Inheritance Tax Planning

From experience, gifts are often part of wider inheritance planning.

However, planning only works if reporting rules are understood.

Good planning involves:

Knowing which gifts are exempt

Understanding the seven year rule

Keeping clear documentation

Communicating with executors

Reviewing plans regularly

In my opinion, secrecy is the enemy of good inheritance tax planning.

Common Mistakes I See

The most common issues I encounter include:

Assuming gifts never need to be reported

Failing to keep records

Confusing income tax and inheritance tax reporting

Forgetting informal gifts

Not telling executors about gifts

Relying on memory rather than evidence

Almost all of these are avoidable.

My Honest View From Experience

In my opinion, the inheritance tax system relies heavily on honesty and record keeping.

You do not usually need to report gifts to HMRC at the time you make them. But that does not mean they are invisible or irrelevant.

From experience, the people who struggle most are not those who made gifts but those who failed to document them.

If you want to protect your family and reduce stress later, treat gift records as part of your financial housekeeping rather than an afterthought.

Where this leaves you

So do you need to report a gift to HMRC for inheritance tax?

In most cases, not immediately. Reporting usually happens after death if the gift falls within the seven year window or does not qualify for an exemption.

The key is preparation rather than paperwork.

Keep records, understand the rules, and make sure the people who will one day deal with your estate are not left guessing.

From experience, that approach makes inheritance tax far more manageable and far less frightening.

If you would like to explore related Inheritance Tax guidance, you may find Do I pay Inheritance Tax on money left in a trust and Do I pay Inheritance Tax on property I live in useful. For broader inheritance tax guidance, visit our inheritance tax hub.