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HMRC Investigators Reap GBP373m From Wealthy Taxpayers

Thursday, February 18, 2010

Law firm McGrigors has obtained data under the Freedom of Information Act that show HM Revenue and Customs (HMRC) investigators, as part of a special High Net Worth Unit, collected GBP373m from wealthy individuals in the 2008/09 tax year. The amount collected is 21% higher than in the previous financial year, and represents a 360% increase over a five-year period.

The unit investigated some 50,000 wealthy individuals – including foreigners – earning over GBP100,000 and with complex financial affairs involving property and share transactions, paying particular attention to offshore companies and trusts used in such transactions.

Phil Berwick, director of tax investigations at McGrigors, blames the complexity of the UK tax system for the difficulties faced by some taxpayers in complying with tax rules. “Planning structures which were valid when established may no longer be compliant,” he said. “Many taxpayers won’t have reviewed their arrangements since and are being caught out.”

Berwick added: "HMRC has also been aggressively targeting tax avoidance schemes used by wealthy taxpayers over the last few years. The requirement to disclose avoidance schemes to HMRC, which was introduced in 2004, has made it much easier for the taxman to stay one step ahead. Many tax avoidance schemes designed to reduce inheritance tax, capital gains tax and stamp duty have been closed down. The rules on trusts have also been overhauled, making it much harder to use them to reduce tax.”

Wealthy taxpayers were dealt another blow when the Court of Appeal, on February 16, found in favor of HMRC in a dispute involving the tax residence status of a British-born businessman who had moved to the Seychelles in 1976.

The businessman, Robert Gaines-Cooper, had sought judicial review against HMRC’s decision that he remained a tax resident in the UK despite spending less than 91 days there each year.

Gaines-Cooper owns a house in England, which is occupied by his second wife and son, and where he keeps classic cars and a collection of paintings. He had drawn up his will under English law, and sent his son to a British public school. On this basis, the court found that the UK had continued to be his “center of gravity of his life and interests.” He now faces a tax bill of around GBP30m dating back to 1993.

Accounting firms have warned that the ruling could affect other wealthy tax exiles. Mike Warburton, senior tax partner at Grant Thornton, has accused the court of “moving the goalposts” for those who currently utilize and abide by the 91-day rule to reduce their UK tax liability.