HMRC expands its high net worth individuals criterion

17 December 2016

High net worth individuals

At present, individuals with a net worth of more than £20m are defined by HMRC as ‘high net worth’ (HNW) and their cases are assigned to a specialist HNW unit with a personal manager.

This allocation is designed to allow a higher level of scrutiny as the HMRC perception is that HNW individuals have a greater opportunity to avoid tax due to more complex affairs, which may result in a risk of errors or differences of opinion on tax law. There is, of course, also more tax at stake per person.

HNW units can be scary

HMRC reports that one third of cases at the HNW unit are currently under enquiry.

In fact, HMRC is targeting an increase in criminal prosecutions for HNW individuals from two a year to 100. This intended increase raises serious questions, either about the low past level of prosecutions or the relative aggression of the future approach, as it seems unlikely that the number of criminal evaders has suddenly gone up by almost 5,000 per cent .

HNW units can be good

For compliant taxpayers, however, being dealt with by the HNW unit can be an advantage as their affairs are dealt with by well-trained specialists, and the ability to deal with one named individual on any number of issues can be a huge help.

The new definition of HNW

The latest news is that the definition of HNW individual is being extended to pick up individuals with net assets of more than £10m. A further 2,000 people are expected to be added to the HNW unit.

And the merely wealthy

A further category of ‘special’ taxpayers, including individuals with income of more than £150,000 or assets of more than £1m is also being set up; 550,000 individuals are expected to be affected. 

Presumably these taxpayers will not face the same level of scrutiny HNW individuals face, as HMRC simply does not have sufficient high level staff, but they will experience more detailed attention and, we hope, a corresponding enhanced service.

Is this the end?

In the UK at present, all taxpayers fill out the same set of forms. HMRC has commented that this system, which does not include details of assets, makes it hard to spot HNW individuals and in particular to spot non-compliant ones. It has pointed out that in other jurisdictions HNW individuals have to fill out extended tax returns, or submit schedules of assets as well as their usual tax return.

The future

In general, as tax advisers, we like to deal with HNW units as they offer an enhanced service.

However, the idea of asking HNW individuals to prepare substantial extra returns seems harsh, especially as the level of information available to HMRC has expanded hugely in recent years. Given the rapidly approaching major changes to the tax system initiated by the ‘making tax digital’ project, this would not seem a good time to add any further complications.

To summarise, all taxpayers are special, but some are more special than others; HMRC’s future approach may tell how special you are . 

For more information please get in touch with Karen Clark, or your usual RSM contact.