Under the plans, if individuals or trusts derive an advantage, they would need to report it to the taxman, who would then investigate how they had interpreted the rules.
The rules were first introduced for large businesses with a turnover of at least £200m and a balance sheet of £2bn to reduce the tax gap, which is the difference between the amount of tax that should in theory be paid to HMRC and the amount that is collected.
According to government figures, the tax gap amounted to £46.8bn in the 2023-24 tax year, with £5.4bn of this the result of taxpayers interpreting the law differently from HMRC. However, statistics show that individual taxpayers are only responsible for 10pc of the gap, while 60pc is attributable to small businesses. According to the consultation document itself for wealthy individuals, there is a projection of £1bn of revenue lost due to legal interpretation.
Commenting, Marc Acheson, Global Wealth Specialist at Utmost said: "This consultation is the latest in a series of policy initiatives aimed at targeting wealthy individuals to plug fiscal gaps and raise tax revenue. While the aim to reduce the tax gap might be well-intentioned, the extension to individuals and trusts could be problematic and have unintended consequences. From a purely numbers standpoint, the vast majority of the tax gap is driven by corporates - primarily small companies – rather than individuals, and differing legal interpretations account for an expected gap of just over £1bn for individuals.
“We have already seen adverse behavioural responses to other measures designed to extract more tax revenue from this cohort, with significant numbers of wealthy non-domiciled individuals having already left the UK. With recent reports suggesting that the “Mansion Tax” may not generate the revenues projected, alongside the application of IHT to businesses and pensions, there is growing unease that the UK is driving wealth away.
“The cumulative impact of all these measures is that we are now increasingly seeing UK-based entrepreneurs and business owners considering options abroad, particularly as other jurisdictions such as Italy, Switzerland and the UAE continue to compete fiercely to attract wealthy individuals to broaden their tax bases.”
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