January 2023 Tax Investigation Round Up

January's round up of the latest tax investigation news and cases:

• Wealthy families targeted for unpaid inheritance tax
• HMRC target offshore tax evaders
• MP made bankrupt after owing debt of over £1.7m

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Wealthy families targeted for unpaid inheritance tax

HMRC are targeting wealthy families for inheritance tax after £326m was retrieved last year from investigations.

According to data by insurer NFT Mutual. efforts have been focused on families who do not pay their inheritance bill correctly in a way to cash in on rising property prices.

HMRC are looking in particular to wealthy individuals with an income over £200,000 or assets over £2m.

In April 2017, on top of the £325,000 IHT exemption, an additional allowance of £100,000 was available to claim to offset the sale of a family home on death. This now has changed to £175,000 allowing £1m of an estate to pass tax free.

Since 2019, HMRC has been investigating 13, 000 individuals in IHT by the tax authority.

Sean McCann, chartered financial planner at NFU Mutual, stated: ‘More inheritance tax is being recovered from HMRC investigations due to the rising value of assets and the potential sums at stake, which justify HMRC spending more time looking at individual cases.’

Mike Warburton, a tax commentator at Taxation, commented: ‘Property and shares are relatively straightforward but problems can arise with valuable chattels such as pictures and antiques. HMRC have wised up to that and now ask to see details of home contents insurance to spot missing items from the assets submitted.

‘Another problem arises with lifetime gifts. Gifts within seven years before the death typically form part of the estate, but how do the executors know about these when the person they most want to ask has inconveniently just died? If they kept detailed records that is great, but many people do not do so.’

Individuals in the UK are entitled to gift others up to £3,000 tax-free. Gifts for example can include wedding or civil ceremony presents, ranging from £1,000 per person, £2,500 for grandchildren and £5,000 for children,

A large amount of money from the £326m claimed by HMRC in 2021-22 in investigations was recovered from ongoing cases from previous years. Data shows that families paid £6.1bn in inheritance tax in 2021-22, up from £5.4bn in 2020-21.

HMRC’s spokesperson added: ‘Our role is to collect the right amount of tax due under UK law. Cases are opened where we identify a risk of tax not being paid.

‘We appreciate dealing with inheritance tax can be difficult and we approach all cases with sensitivity. Anyone with concerns or who needs extra support can call our inheritance tax helpline on 0300 123 1072.’

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HMRC target offshore tax evaders

Information from the Register of Overseas Entities will be available to the HMRC to target tax evaders who may be hiding money offshore in order to lower their tax bills. The tax authority already uses information through international agreements in order to crack down on offshore non-compliance.

‘The information received from the register will increase transparency, making it easier than ever to make sure the correct tax is paid,’ HMRC comments.

By 31 January 2023, overseas entities that own UK property must use the Register of Overseas Entities providing information with companies house about their relevant trusts and beneficial owners.

The register must be completed overseas  for UK property owners that;

• manage or administer an overseas entity;
• are a trustee of a non-UK trust; and
• are a UK resident beneficial owner, or can benefit from the UK property.

‘You should do this before 28 February 2023 and let HMRC know you intend to make a disclosure. If you do not come forward before that date, penalties may be higher,’ HMRC suggested.

In the UK, since April 2019 gains made by overseas companies on UK non residential property as an investment that derive at least 75% of their value from property or land have been taxable. Since April 2020, rental income has been subject to corporation tax. Stamp duty land tax rates for the primary  property are 2% higher than standard rates.

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MP made bankrupt after owing debt of over £1.7m

Conservative MP Adam Afriyie has been made bankrupt after owing a large debt of over £1.7m to HMRC and Barclays Bank for unpaid tax.  

During a hearing at the Insolvency and Companies Court, it was found that he owed £1m to HMRC and £700,000 to Barclays Bank.

Afriyie had appealed to the court asking for it to be adjourned until March, stating he would sell his property to pay off his debts. Barclays and HMRC both opposed this, claiming that they had ‘lost patience’ and there was ‘no credible evidence’ for his claims that the property would sell shortly.

Judge Briggs expressed: ‘There have been six hearings already of this matter so time really has run out. I shall make a bankruptcy order.

‘It seems to me there is no evidence of there being any reasonable prospects of paying debts in full.’

A petition for bankruptcy was filed against Afriyie in November 2021 over an unpaid bill related to the liquidation of Connect Support Services, an IT company founded in 1993. The company had racked up debts of up to £1.7m with HMRC and was sold by administrators.

Afriyie was given three months to pay off the debt in May 2022 by the Insolvency Companies Court. He also insisted that he would not stand down as an MP until the net general election in 2023.

The rules in the House of Commons however, clearly state that if an MP is declared bankrupt, after six months a by-election takes place.

Commenting on his own case, Afriyie said; ‘This has been ongoing for many years following business failures some time ago.

‘It is a stressful time and it’ll be tough for a while, but I’m far from the only person in a difficult position, and I will continue to do my best to support my constituents until the next general election, when I’ll be standing down. I am ultimately responsible for some of the bank borrowing through personal guarantee. I’ve been trying to sell our home and downsize for some time, but it’s a tough market.’