In the fiscal year 2023/24, HMRC has amassed £1.5 billion through in-depth probes targeting the affluent. Here's a lowdown on safeguarding your wealth.
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Plenty of dough rained on the UK government's coffers last year, thanks to HMRC's thorough investigations into the wealthiest taxpayers. That's right; over £1.5 billion was pocketed from these affluent individuals, double the £713 million they snagged the year before!
The powerful Wealthy and Mid-Sized Business Compliance Directorate, who specialize in rooting out tax cheats, did the heavy lifting on this one. These top-notch Officers zeroed in on individuals bringing home over £200,000 or boasting assets worth more than £2 million.
Looks like the British Treasury is eager for more cash, so they've given HMRC an extra £100 million to bring on 500 more compliance officers. The aim? To bag another billion pounds in untapped revenue by 2029/29. As a result, keep an eye out for more investigations into our well-off cohorts, who will be trying to close the £1.9 billion 'tax gap' - the big difference between total tax liabilities and payments.
Ian Robotham, head honcho of tax disputes and investigations at Pinsent Masons, thinks it's a safe bet that these targets won't be met without a significant jump in tax inquiries into the upscale set. So, if you're one of these folks with dodgy tax stuff to sort, better get some expert advice pronto.
Moreover, HMRC's been beefing up their AI tools and big data techniques to sift out more tax dollars. That means it's even more pivotal to be diligent with your tax returns.
Make Your Cash Work Harder for You
Given the rise in investigations against wealthy taxpayers, it makes sense to get smart with your funds. Ian Futcher, a shrewd money guy at Quilter, notes that once you cross the £200k income threshold, the tax system starts to kick in multiple places. High earners should watch out for income and capital taxes eating away at their income without careful planning.
So, what can you do to minimize your total tax liability? Well, for starters, Futcher recommends funneling money into pension funds. While the annual pension allowance is trimmed for certain high earners, pension contributions still pack a powerful punch. But remember, soon, pension wealth will become subject to inheritance tax, so this should factor into your calculations.
High net-worth folks with £2 million or more in assets may worry about inheritance tax, as the Residence Nil Rate Band (currently £175,000) dwindles when estates surpass this value, making more wealth vulnerable to IHT. In this case, trust planning, surplus income gifting, and the use of onshore bonds within trusts can help reduce the taxable value of the estate without sacrificing control or liquidity.
Futcher suggests spreading asset ownership across family members using lifetime gifting strategies, especially for assets expected to appreciate, to chip away at the estate value over time.
"High earners need to be shrewd about their investments," says Futcher. Structuring portfolios to use ISA allowances, offsetting gains with capital losses, and looking into family investment companies or limited partnerships can all help lessen capital gains tax for assets that aren't within an ISA. But remember, these strategies require expert advice! After all, the tax system can be densely packed with quirks and traps that'll ensnare the unwary, and the wealthier you are, the more likely it is that your hard-earned cash will end up falling into one of those traps without a detailed plan in place.
- Amidst the increased focus on wealthy taxpayers by HMRC, it's crucial for high earners to optimize their personal finance strategies.
- As the annual pension allowance is reduced for high earners, yet pension contributions still offer significant benefits, it's wise to consider allocating funds towards pension funds to minimize total tax liability.
- For high net-worth individuals with over £2 million in assets, strategizing for inheritance tax becomes essential as the Residence Nil Rate Band dwindles for larger estates. Trust planning, surplus income gifting, and the use of onshore bonds within trusts can help reduce the taxable value of the estate without compromising control or liquidity.
