The National Audit Office’s report, ‘Collecting the right tax from wealthy individuals’, warns that the levels of tax evasion and avoidance by Britain’s rich may be much higher than HMRC previously thought. The complexity of their affairs allows for greater opportunities for dishonesty, the report concluded.
HMRC define wealthy individuals as those earningmore than £200,000 a year, or with assets over £2 million, in any of the lastthreeyears. In 2023-24, HMRC identified approximately 850,000individualsaswealthy. They paid £119bn in personal taxes in 2023-24, representing 25% of the UK’s personal tax receipts.
The National Audit Office (NAO) points out that wealthy people contribute significant amounts of tax revenue to the Exchequer, but the complexity of their tax affairs (amix of income streams, assets and business interests) increases the opportunity for tax planning and avoidance and blatant evasion.
The NAO’s viewpoint on HMRC’s efficacy was mixed, pointing out that HMRC have no unit dedicated solely to examining all taxes the wealthy pay, yet HMRC were also one of the few revenue services to publish an annual wealthy tax gap, which it estimated at £1.9bn in 2022-23, the latest year available.
The figures showed HMRC had collected more tax than it had previously believed possible, according to the report.
Summary points
- HMRC no longer has a unit specifically dedicated to ensuring compliance among high-net-worth and the wealthiest individuals.
- Income is typically taxed at a higher rate than capital, so tax planning often involves shifting what a taxpayer holds fromincome into Capital.
- HMRCinvestigate using the ‘wealthy team’ within HMRC’s Customer Compliance Group, consisting of around910full-time equivalent staff. Separate teamsexamine Inheritance Taxdata analysis of wealthy individuals, and compliance onkey issues suchasoffshore tax.
- HMRC estimates its complianceactivitiesfor wealthyindividualscost£350m in 2023-24.
- More than 85% of the tax the wealthy pay is on earned income through Income Tax or National Insurance (£103 billion).
- HMRC collected a further £9bn in Capital Gains Tax£4bn from Inheritance Tax and £3bn from stamp duties.
- The population of wealthy individuals that HMRC administer has grown from 700,000 in 2019-20 to 850,000 in 2023-24.
- HMRC have identified a growing risk of non-compliance among wealthy individuals. Using their 19 key risks, HMRC identified that the net loss in tax revenue from wealthy individuals increased by 21% between 2020-21 and 2022-23.
- Theprofile of the wealthy team’s casework does not align well with these risks. Some58% of the casework that the wealthy team closed in 2023-24focused on just one risk: inaccuracies in reporting personal income. Offshorenon-compliance accounted for less than 5% of casework.
- HMRC are working to improve their estimate of offshore non-compliance, whichis a notably difficult area.
- Internally, HMRC have identified a much larger amount of tax at risk from all forms of offshore non-compliance. UK residents held £849 billion in offshore accounts at the end of 2019, limited to those 93 tax jurisdictions that automaticallyexchanged account information with the UK under the Common Reporting Standardfor that year.
- HMRC’s assessment of strategic risks does not include explicit risks of non-compliance posed by tax agents or the very wealthy, despite the amount of tax at stake.
- HMRC report that the additional revenue it has secured from wealthy individuals has more than doubled, from £2.2bn in 2019-20 to £5.2bn in 2023-24.
- The growth in compliance yield from wealthy individuals that HMRC have reported far exceeds its estimates of the wealthy tax gap.
- The annual amount of compliance yield has increased by £3bn, which is over £1bn more than HMRC’s annual estimate of the wealthy tax gap (£1.9 billion).
- Wealthy compliance cases take a long time to resolve, particularly when large sums are at stake.
- Wealthy taxpayers have faced fewer penalties in recent years, and criminal prosecutions of wealthy individuals also declined, although HMRC is now increasing its use of criminal investigations.
- In 2023-24, HMRC issued 456penalties to wealthy individuals (representing 5% of the cases the wealthy team closed), totalling£5.8m. This is down from 2,153 penalties (14% of cases closed), totalling £16.2m in 2018-19.
- HMRC have set out only a limited strategy to tackle wealthy non-compliance, but it has recognised it needs to increase the attention it gives to this group.
Notes (Source NAO & HMRC figures)
- Since 2019-20, HMRC define wealthy individuals as those who have incomes of £200,000 or more, or assets equal to orabove £2 million, in any of the last three years.
- Values are in nominal terms and have not been adjusted for inflation.
- Stamp duty taxes constitute Stamp Duty Land Tax (on purchases of property) and Stamp Duty Reserve Tax (on purchases of shares).
- The NAO has not included money which HMRC receive in fines and penalties, which HMRC do include in its published receipts figures.
- Totals may not sum due to rounding.
Useful guides on this topic
IHT: Estate planning checklist
This checklist coverssome of theessential planning points that taxpayers should know when planning for their estate and Inheritance Tax (IHT).
Capital taxes round-up: 2024-25
A round-up of developments in capital taxes for individuals for 2024-25 including some topical Capital Gains Tax (CGT) and Inheritance Tax (IHT) cases.
Common Reporting Standard (CRS)
What is theCommon Reporting Standard (CRS)? What are the consequences of the CRS?
External link
National Audit Office:Collecting the right tax from wealthy individuals
