HMRC has published a report on the tax compliance behaviour of wealthy individuals, drawn from research commissioned to help inform the way it works with this group of taxpayers and their professional advisors. The report was based on a survey of 32 wealthy individuals and ten agents with experience of dealing with such individuals.
The research aimed mainly to understand:
how wealthy people see themselves;
what shapes their behaviour;
how they plan and structure their tax affairs;
how they view tax avoidance and evasion; and
how HMRC could encourage voluntary compliance.
In summarising their findings, the researchers suggest that attitudes to tax compliance among wealthy individuals seek to balance making a contribution to society with intolerance of too punitive a tax regime. The report suggests incentives to promote safer tax arrangements among this group might be found in the desire to preserve quality of life and peace of mind. Other suggestions include more clarity from HMRC around what is deemed risky and more decisive action against scheme promoters.
For the purposes of this research, ‘wealthy individuals’ were split into two groups:
‘affluent’ individuals with net wealth under £10m; and
high net worth (HNW) individuals with net wealth of £10m and above.
Those in the ‘affluent’ group tended not to see themselves as among the ‘very rich’, or even having the resources to hire expertise to avoid paying tax. The HNW group was more likely to acknowledge the extent to which wealth allowed them to make lifestyle choices. Some, including agents, expressed reservations about the level of scrutiny that being ‘part of this club’ attracts.
Individuals with income from overseas were those most likely to perceive their tax affairs as complex and requiring the services of tax advisors. Agents cited the remittance basis for non-domiciles as an area of difficulty. Property investments and CGT on asset disposals were seen as complex by individuals and agents alike. As a consequence, wealthy individuals tended to have very little direct contact with HMRC. Only those with fewer income streams or experience of working in finance were likely to actively manage their tax affairs.
Agents and individuals with experience of dealing with HMRC’s HNWI and affluent units were generally positive about their interactions with HMRC and the staff in these units. Non-doms and those with experience of other tax systems tended to view HMRC relatively favourably compared to other countries.
A few agents and individuals described a perceived shift in HMRC’s attitude in recent years, informed by a ‘morally-loaded narrative’ in the media and public life.
Suggestions for specific areas where the relationship with HMRC could improve included:
more consistency in quality of advice and tone of communication from HMRC;
fewer protracted enquiries where informal channels of communication might have resolved matters more quickly, which some agents viewed as a deliberate approach designed to ‘wear down’ opposition;
instances where HMRC ‘bypassed’ agents to speak directly to clients; and
for agents, applying less pressure to resolve queries in the busy period between November and January.
Three aspects of the UK tax system were highlighted as particularly problematic for many wealthy individuals and their agents:
complexity of rules and consequent ‘grey areas’ where tax avoidance could flourish (particular issues being venture capital, offshore trusts and changing rules around trusts generally, film schemes, loss relief, changes around deductibility of interest, and the revenue/capital distinction);
increasing unfriendliness towards non-doms, with the rules becoming ‘more opaque, complex and punitive’; and
IHT, which some regarded as ‘being taxed twice’ and felt avoidance to be justified.
The majority felt the headline level of income tax was ‘more or less appropriate’, with a few seeing 50% as the tipping point for exploring more risky tax avoidance.
Broad patterns emerged in the attitudes of the following groups:
the ‘established’ wealthy, who were concerned to minimise IHT;
the ‘self-made’ wealthy, who also tended to be resentful of IHT;
‘new money’, whose wealth has risen rapidly, leading to a greater appetite for risk-taking in their tax affairs; and
non-doms, who tended to show a greater sense of social responsibility and desire to demonstrate they were ‘good taxpayers’.
The motivation for a higher-risk approach to tax matters was often the desire to avoid IHT, but only using arrangements already tested and validated by legal precedent.
Those adopting a lower-risk approach were motivated by such things as not undermining quality of life, avoiding impacts on families, and fear of damage to professional reputation.
Agents’ attitudes towards risky arrangements tend now to acknowledge a changed context in which ‘what was once acceptable is no longer so’. This was also reflected in the responses of the wealthy individuals.
With regard to sanctions for non-compliance, wealthy individuals were least worried about financial penalties, while the threat of imprisonment, stress affecting quality of life, or reputational damage, caused most concern.
Some agents felt that the focus on wealthy individuals is misplaced, as the resources and appetite for risky tax avoidance exist mainly among businesses.
See the report: ‘Researching the drivers of tax compliance behaviour among the wealthy and ways to improve it’, bit.ly/2URWUi6.
HMRC has published a report on the tax compliance behaviour of wealthy individuals, drawn from research commissioned to help inform the way it works with this group of taxpayers and their professional advisors. The report was based on a survey of 32 wealthy individuals and ten agents with experience of dealing with such individuals.
The research aimed mainly to understand:
how wealthy people see themselves;
what shapes their behaviour;
how they plan and structure their tax affairs;
how they view tax avoidance and evasion; and
how HMRC could encourage voluntary compliance.
In summarising their findings, the researchers suggest that attitudes to tax compliance among wealthy individuals seek to balance making a contribution to society with intolerance of too punitive a tax regime. The report suggests incentives to promote safer tax arrangements among this group might be found in the desire to preserve quality of life and peace of mind. Other suggestions include more clarity from HMRC around what is deemed risky and more decisive action against scheme promoters.
For the purposes of this research, ‘wealthy individuals’ were split into two groups:
‘affluent’ individuals with net wealth under £10m; and
high net worth (HNW) individuals with net wealth of £10m and above.
Those in the ‘affluent’ group tended not to see themselves as among the ‘very rich’, or even having the resources to hire expertise to avoid paying tax. The HNW group was more likely to acknowledge the extent to which wealth allowed them to make lifestyle choices. Some, including agents, expressed reservations about the level of scrutiny that being ‘part of this club’ attracts.
Individuals with income from overseas were those most likely to perceive their tax affairs as complex and requiring the services of tax advisors. Agents cited the remittance basis for non-domiciles as an area of difficulty. Property investments and CGT on asset disposals were seen as complex by individuals and agents alike. As a consequence, wealthy individuals tended to have very little direct contact with HMRC. Only those with fewer income streams or experience of working in finance were likely to actively manage their tax affairs.
Agents and individuals with experience of dealing with HMRC’s HNWI and affluent units were generally positive about their interactions with HMRC and the staff in these units. Non-doms and those with experience of other tax systems tended to view HMRC relatively favourably compared to other countries.
A few agents and individuals described a perceived shift in HMRC’s attitude in recent years, informed by a ‘morally-loaded narrative’ in the media and public life.
Suggestions for specific areas where the relationship with HMRC could improve included:
more consistency in quality of advice and tone of communication from HMRC;
fewer protracted enquiries where informal channels of communication might have resolved matters more quickly, which some agents viewed as a deliberate approach designed to ‘wear down’ opposition;
instances where HMRC ‘bypassed’ agents to speak directly to clients; and
for agents, applying less pressure to resolve queries in the busy period between November and January.
Three aspects of the UK tax system were highlighted as particularly problematic for many wealthy individuals and their agents:
complexity of rules and consequent ‘grey areas’ where tax avoidance could flourish (particular issues being venture capital, offshore trusts and changing rules around trusts generally, film schemes, loss relief, changes around deductibility of interest, and the revenue/capital distinction);
increasing unfriendliness towards non-doms, with the rules becoming ‘more opaque, complex and punitive’; and
IHT, which some regarded as ‘being taxed twice’ and felt avoidance to be justified.
The majority felt the headline level of income tax was ‘more or less appropriate’, with a few seeing 50% as the tipping point for exploring more risky tax avoidance.
Broad patterns emerged in the attitudes of the following groups:
the ‘established’ wealthy, who were concerned to minimise IHT;
the ‘self-made’ wealthy, who also tended to be resentful of IHT;
‘new money’, whose wealth has risen rapidly, leading to a greater appetite for risk-taking in their tax affairs; and
non-doms, who tended to show a greater sense of social responsibility and desire to demonstrate they were ‘good taxpayers’.
The motivation for a higher-risk approach to tax matters was often the desire to avoid IHT, but only using arrangements already tested and validated by legal precedent.
Those adopting a lower-risk approach were motivated by such things as not undermining quality of life, avoiding impacts on families, and fear of damage to professional reputation.
Agents’ attitudes towards risky arrangements tend now to acknowledge a changed context in which ‘what was once acceptable is no longer so’. This was also reflected in the responses of the wealthy individuals.
With regard to sanctions for non-compliance, wealthy individuals were least worried about financial penalties, while the threat of imprisonment, stress affecting quality of life, or reputational damage, caused most concern.
Some agents felt that the focus on wealthy individuals is misplaced, as the resources and appetite for risky tax avoidance exist mainly among businesses.
See the report: ‘Researching the drivers of tax compliance behaviour among the wealthy and ways to improve it’, bit.ly/2URWUi6.
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