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  1. Wealth
November 30, 2016

No let up for HNWs from the taxman

By Spear's

The National Audit Office’s recent re-evaluation of HNWs will see HMRC taking ever greater interest in their affairs says Hannah Blakey.

A recent report issued by the National Audit Office (NAO) has confirmed that HMRC is currently conducting formal enquiries into the tax affairs of around a third of the UK’s high net worth individuals.

The report, entitled ‘HMRC’s approach to collecting tax from High Net Worth individuals’, examines HMRC’s strategy for collecting tax from those with a net worth of at least £20 million. At the start of 2015/16, HMRC’s specialist HNW unit (first established in 2009) considered there to be around 6,500 HNWs, making up roughly 0.02 per cent of all taxpayers.

However, from the tax year 2016/17, the threshold to qualify as a HNW has been halved to a net worth of £10 million, meaning more and more taxpayers will find themselves coming under closer scrutiny from HMRC’s specialist HNW team.

In 2014/15, HNWs paid over £4.3 billion in tax. This included £3.5 billion in income tax and national insurance or 1.3 per cent of the total revenue for those taxes and £880 million in capital gains tax or 15 per cent of all CGT. Although the figures for inheritance tax are calculated in a different way, the NAO report confirms that HMRC has identified 161 inheritance tax records relating to HNWs’ estates between May 2014 and April 2016 on which inheritance tax of £183 million has been paid to date.

With such colossal amounts of tax already being paid, where formal enquiries are being conducted into a HNW’s tax affairs, it is undoubtable that the amount of tax in question is worth investigating.

The NAO has estimated that the formal enquiries currently in progress possess a potential value of £1.9 billion. According to the report, £1.1 billion of this value relates to the use of marketed avoidance schemes, with the NAO confirming that 15 per cent of the wealthiest have used at least one scheme. Tax avoidance schemes are reported to have been used by numerous famous names in recent years. England football captain Wayne Rooney is facing a potential bill of £5 million for investing in a film project suspected to be a tax avoidance scheme, and up to 100 BBC staff are currently being investigated over alleged tax avoidance.

Positively for the wealthy, the report acknowledges that HMRC is taking steps to understand and engage with the tax affairs and behaviour of HNWs. Amyas Morse, head of the NAO, confirmed: ‘The tax affairs of the wealthiest in society are complex, making it harder for HMRC to ensure that they are paying the right amount of tax. HMRC’s specialist team gives it a better understanding of the tax affairs and behaviours of these taxpayers.’

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However, it cannot be said that such engagement reflects a soft stance on HNWs.

An HMRC spokesperson said: ‘Everyone must pay the tax that is due and we do not accept less. HMRC enforces the rules impartially and last year we tracked down an additional £416 million in tax from the wealthiest that would have otherwise gone unpaid. We will continue to evaluate our results so that we carry on getting what is due to the country.’

The NAO’s report is further evidence that HMRC’s spotlight is clearly focused on the UK’s wealthiest taxpayers. It is therefore ever more imperative that sound and practical tax advice is taken to ensure that, if an HMRC investigation is instigated, questions can be answered comfortably without concern.

Hannah Blakey is an associate at boutique private wealth law firm Maurice Turnor Gardner LLP.  

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