As anticipated, this week’s budget has targeted high net worth (HNW) individuals through its clampdown on tax relief and avoidance schemes. In his speech, George Osborne said that HMRC had estimated a £14bn loss in 2008 as a result of tax avoidance schemes and evasion and that “specific measures” now need to be taken.
As part of the clampdown, the Chancellor announced the following new measures:
- 43 tax reliefs to be scrapped as part of a proposed simplification of the tax code
- targeting tax avoidance on high value property
- private jet users forced to pay passenger duty for the first time
- three new Stamp Duty Land Tax anti-avoidance measures
- targeting of disguised remuneration packages and life term loans which are never repaid.
The precise details of the clampdown will become clearer in time. However, an immediate concern arising from the increased scrutiny by HMRC inspectors is that it may lead to a rise in complaints by HNW individuals that their rights to privacy or the peaceful enjoyment of property have been infringed. As Jonathan Levy, head of our Tax Disputes group, comments: “HMRC are obliged to comply with the Human Rights Act and the European Convention of Human Rights. Taking such a proactive and targeted approach may, in certain circumstances, infringe taxpayers’ human rights.”
It is clear the Government considers these new measures necessary in the current cuts climate, particularly as it is predicted that these anti-avoidance measures will raise £1bn this year and £4bn in the course of this Parliament. The additional taxes have already been earmarked to fund the income tax threshold rise (to £8,015 in April 2012) and the cutting of the 1p fuel duty.
More detail is required and there could still be further anti-avoidance and evasion measures to be revealed from the body of materials that usually accompany the budget speech. In any event, both HNW individuals and their advisers should be alert to the potential impact of these changes on existing and future investments.
Although advisers are usually careful to disclaim liability by providing risk warnings about changes in tax law, disgruntled clients are likely to complain about the advice if it ends up leaving them exposed to unexpected tax liabilities or if a scheme fails to achieve the originally intended tax advantages. Retrospective analysis of such advice may then expose the adviser to liabilities for not only the tax planning element of the advice but also for the suitability of the recommendation generally.