Paul Malin, director of tax investigations for BTG Tax, examines the tax squeeze on the rich and famous.
The UK’s seriously rich are in line for the Down Under treatment.
HM Revenue & Customs look set to follow the example of their counterparts in Australia as they seek to maximise the tax take.
The wealth of this nation is a combination of ‘old money’ – accumulated over many years and indeed centuries – and ‘new money’, built by today’s brilliant businessmen and entrepreneurs.
But the bulk of this wealth revolves around a relatively small number of individuals and families.
Some are well-known faces, appearing regularly in the media; others may be barely known outside their own close circle.
You are likely to find them featured on various Rich List publications.
Indeed, the backbone of the UK’s fragile economy is said by some to be interlinked with this relatively small group of taxpayers, a combination of wealth creators and wealth retainers.
The total number of individual taxpayers in the UK has remained more or less constant at about eight million since 1996/97 when Self Assessment was first introduced. Monitoring the tax compliance of such a large number of taxpayers is part of the day to day role of HMRC.
Creating wealth is continuing to be a challenge in the current economic climate and yet entrepreneurs still want to take the necessary risks in order to do so. So, it is understandable that they may seek to protect some of their wealth “just in case”.
Retaining an individual’s wealth has also become more and more challenging following recent developments within HMRC.
Whether you accept the UK as your tax base or not, it would now appear that HMRC are targeting this “high risk category” simply because the potential loss in terms of revenue to the Exchequer.
Since April last year, the High Net Worth Unit has been in operation and is tasked to specifically monitor the tax returns of the richest 20,000 people measured in terms of both disposable income and assets.
As part of all this, there are approximately 300,000 personal trusts and estates in the UK.
Good tax planning will often involve the use of trusts both in the UK and overseas, depending upon the circumstances of each taxpayer.
Tax planning for such wealth creators and wealth retainers is key in order to keep such talent available to the UK economy.
However, HMRC are now set to use the decision of the High Court judges in the case of Robert Gains-Cooper to recoup potentially millions of pounds from those wealth creators who thought they had left their UK tax status behind and had become “non-dom”.
Gains-Cooper, a globetrotting British businessman based in the Seychelles, lost a long-running court battle over his residency status.
The Court of Appeal ruled he was liable to pay UK tax despite spending less than 91 days a year in the country because England had remained “the centre of gravity of his life and interests”.
Mr Gaines-Cooper, who is in his seventies, began a successful jukebox business in England in 1958, and set up companies in Canada, the US, Italy, Singapore, Jersey, Cyprus and the Seychelles, including a successful concern that produces surgical aids.
Many others are now likely to find themselves similarly pursued.
At first glance it may be difficult to see how HMRC expect to increase the amount of tax revenues from such a small group.
However, the experiences of Australia’s comparable High Net Worth Unit suggests otherwise as it has been reported that 24 of Australia's richest individuals brought in an extra A$918 million in one financial year, an average of $38 million each, following a crackdown on tax avoidance among ultra-high net-worth individuals.
No doubt HM Revenue & Customs would welcome a comparable result here in the UK.
It is the role of the specialist tax adviser to defend any taxpayer who comes under close scrutiny of HMRC.
And you can be sure that as a consequence HMRC is in for a fight.
BTG Tax is part of the Begbies Traynor Group. Paul can be contacted on Paul.Malin@btg-tax.com or +44 (0)121 252 1515.
