Top 5 Triggers for HMRC Tax Investigation into HNWI

Tax investigations are one of the most disruptive experiences any individual can face — especially for wealthy taxpayers with complex financial affairs.

HMRC has been given £100 million in extra funding and is hiring 5,500 new compliance officers, with a mandate to increase prosecutions by 20% over the next five years. This means the likelihood of wealthy individuals being investigated is higher than ever before.

Inconsistent or Suspicious Tax Returns

The most obvious trigger is when an individual’s tax return doesn’t add up.

Red flags include:

• Sudden drops in declared income without explanation.
• Expenses or deductions that appear inflated.
• Lifestyle that doesn’t match reported income (e.g., luxury assets but low taxable income).
• Undeclared capital gains on asset disposals.

HMRC’s powerful Connect AI system cross-references tax returns with third-party data, including bank records, property purchases, and even social media activity. If something looks inconsistent, it can spark an enquiry.

Offshore Accounts and Complex Wealth Structures

For wealthy individuals, offshore assets are a significant area of focus for HMRC.

Common triggers:

• Funds held in offshore bank accounts were not properly declared.
• Trusts or corporate structures are used for inheritance tax (IHT) planning.
• Assets transferred abroad without transparent reporting.

Since the introduction of the Common Reporting Standard (CRS), more than 100 countries now automatically share financial account information with HMRC. What was once hidden offshore is now fully visible.

Civil Proceedings Revealing Wealth

As covered in cases like Standish v Standish (2025), divorce, probate disputes, and insolvency cases often force individuals to disclose their wealth in detail.

• Financial disclosures made in divorce proceedings can expose offshore accounts or inheritance planning schemes.
• Probate disputes may highlight undisclosed trusts or gifts.
• Insolvency litigation can reveal business structures designed to shield income.

Once such information becomes public or is referred to in open court, HMRC can often access and use it in investigations.

Lifestyle vs Declared Income

HMRC closely examines cases where a taxpayer’s lifestyle does not align with their reported earnings.

For example:

• A taxpayer declaring £50,000 per year but buying a £3m property.
• Use of private jets, yachts, or high-value art not supported by reported income.
• Social media posts showing luxury spending that contradicts tax filings.

Inconsistencies like these are flagged through HMRC’s Connect system, which tracks over 1 billion data points per day.

Voluntary Disclosures Made Too Late

Wealthy individuals sometimes wait too long to regularise their tax affairs.

Once HMRC has gathered evidence — whether through international data sharing, AI analysis, or court disclosures — it may be too late to use the Contractual Disclosure Facility (CDF), which offers immunity from prosecution in exchange for voluntary disclosure.

Instead of reduced penalties, taxpayers may face:

• Full financial penalties (up to 200% of unpaid tax in offshore cases).
• Criminal prosecution.
• Reputational damage from being named publicly.

Why Wealthy Individuals Are at Higher Risk

HMRC’s High Net Worth Unit specifically targets individuals with assets over £10 million. These taxpayers are more likely to:

• Engage in aggressive inheritance or income tax planning.
• Own offshore accounts and trusts.
• Be involved in civil proceedings (divorce, wills, probate).
• Have business structures HMRC considers “high risk.”

High-net-worth individuals are increasingly being targeted by HMRC, particularly with the introduction of new investigators and a mandate for the wealthy to “pay their fair share.” Warning signs, such as inconsistent tax returns, offshore structures, or unexplained wealth, often trigger investigations. With expanded enforcement powers, wealthy individuals face growing risks. The best defence is proactive compliance and early disclosure, aided by expert tax advisors. If you’re concerned about your tax situation or think you might be under investigation, our specialists can help protect your assets, reduce penalties, and avoid prosecution.