Wealthy individuals quite rightly value their privacy, and disclosing financial information which may not be relevant to their UK tax position is always a concern, as is the risk that that information could be exchanged with other tax jurisdictions using the legal gateways.
There is a fine line between cooperating and volunteering information not relevant to the enquiry.
In more serious cases, HMRC may receive information from the NCA and investigate whether there has been tax lost due to tax avoidance or evasion.
Unexplained Wealth Orders
The UK now has the power to issue Unexplained Wealth Orders where the individual is unable to satisfy the NCA that the source of the funds to acquire UK assets or pay for services is legitimate
As HMRC will not necessarily disclose the source of their information, recognising the signs that they have serious concerns about the source of the funds brought into the UK is key to resolving the enquiry.
What information is needed to explain the source of the funds and, if the information is incomplete or sparse, what can be done to reassure HMRC?
Tax enquiries can also extend to the residency position of the taxpayer.
HMRC will use its powers to establish whether an individual is indeed non-resident for UK tax purposes.
HMRC can utilise information held by the airlines, border agency and financial institutions to see if there are any inconsistencies.
Alternatively, are there transactions on UK bank statements that suggest the individual was buying goods and services in the UK when they were supposedly overseas?
The questions often focus on how the individual determined whether they were UK resident.
Did they correctly understand the UK legislation on tax residency? Did the adviser ask all the pertinent questions?
HMRC is aware that unfamiliarity with the UK tax system is a common cause of individuals being caught by complex UK tax code.
When someone first moves here, they might not know how long they intend to stay.
The difficulty lies in determining when an individual is no longer a visitor but a resident.
It then becomes important to understand the source of the funds brought into the UK and if the monies are subject to UK tax.
An example of one of the difficulties faced is where an individual settles here as a UK resident but non-UK domicile.
In these cases, the way in which they manage their non-UK bank accounts and investments can have a large influence on the amount of tax they pay in the UK.
If properly structured from the outset, the complex rules of the remittance basis and mixed funds can be adequately navigated.
