HMRC’s Latest Initiatives Target Hidden Wealth

Since 2010, the Conservative government has subjected Britain’s public sector to an aggressive programme of deficit reduction to restore order to UK public finances. One consequence of this initiative is that the British public is easily exasperated by the thought of individuals and companies that avoid paying their fair share of tax. The UK government has responded to public concern with several reforms aimed at taking a more proactive position in relation to tax avoidance.

Recently, HM Revenue and Customs (HMRC) announced that more than £1 billion in tax has been brought in through its High Net Worth Unit, a specialist division that deals with the tax affairs of the UK’s wealthiest individuals. The unit examines the tax affairs of the 6,200 wealthiest individual customers of HMRC, each thought to have a net worth of more than £20 million. Each customer is assigned a relationship manager who has an in-depth understanding of the tax issues of wealthy individuals. This unit not only maximises voluntary compliance of the majority of wealth individuals but also ensures HMRC can target those who fail to play by the rules.

The government also has expats in its sights and is planning a £400 million tax swoop on those who rent out their UK homes. HMRC is looking to cut expats’ personal allowances if they rent out their UK homes. This is part of Chancellor George Osborne’s plans to oblige non-UK residents to pay tax on all their UK income. Currently, EU nationals and British expats are entitled to offset income earned in the UK against the £10,000 personal allowance. It has been estimated the change could affect up to 400,000 people and raise an extra £400 million a year in tax.

Inheritance tax planning for all but the super-rich looks set to become much harder under HMRC’s plans to curb the use of trusts. HMRC is consulting on proposals to ensure fairness in the system by preventing people from setting up multiple small trusts to cut their inheritance tax bills. Advisers say the plans are likely to be adopted. The move would hit moderately wealthy people, typically with estates of up to £2m, who some believe already shoulder a disproportionate share of inheritance tax as they do not have the planning options that are available to the wealthiest.

The government set out plans in the 2014 budget for HMRC to have the power to recover tax directly from debtors’ bank accounts where they owe more than £1,000 and have previously been contacted about paying the tax. In using this power, HMRC says it will ensure debtors are left with at least £5,000 in their account. However, several politicians have backed the campaign to stop the legislation, with some suggesting it will violate some of the earliest statutes of British law. Moreover, banks have warned that HMRC is not competent enough to be trusted with the power to seize unpaid tax directly from bank accounts.