This includes the NCA, which has received a great deal of publicity recently around Unexplained Wealth Orders.
These UWOs target UK residents who are unable to explain the source of the wealth used to pay for goods and services.
It is almost inevitable that cases unsuitable for UWOs will still be investigated by HMRC to see if the funds used to acquire assets would be subject to UK tax.
Over recent years, HMRC has been provided with a wealth of information from overseas financial institutions, whether it was data allegedly stolen (Panama and Paradise papers and the HSBC Geneva data leak) or legally obtained via the Common Reporting Standard.
The last four years have seen significant changes in the transparency of low tax jurisdictions in terms of cooperation and the exchange of information.
The introduction of the automatic exchange of information has ironically presented HMRC with a new and more complex problem.
Now that it has all this data, what does it do with it?
HMRC has limited resources and has decided on a strategy of issuing ‘nudge’ letters to taxpayers.
These letters are used in cases deemed to be low risk and has allowed HMRC to reserve investigations for cases where the tax at risk is deemed to be more significant or there is suspected tax evasion.
The nudge letters normally require a response, with the underlying message that if a reply is not forthcoming, HMRC will enquire into the issue in the future.
Careful consideration should be made when deciding how to respond to these letters and specialist advice sought.
HMRC is aware that wealthy individuals have a higher level of passive income and often seek investment opportunities outside the UK.
These activities are sometimes caught by the UK’s anti-avoidance legislation surrounding assets transferred and invested abroad.
Non-UK domicile
The situation is further complicated where the individuals are non-UK domiciled and may have arranged their affairs so that not all their assets are held here.
Now that HMRC has been given access to a plethora of overseas financial information, the task of identifying inconsistencies between the information contained on the UK Tax Register and the overseas information has become easier.
This presents advisers and their clients with a new problem.
HMRC is often unwilling to disclose the source of their information.
The problem in circumstances of official reticence is how to work with HMRC while best representing clients and minimising their exposure?
Although the tax investigator may give a general steer, it is often difficult to identify the exact cause of the enquiry; it is important that the adviser cooperates but does not volunteer information.
