HMRC raises £1.5 billion from special investigations into the wealthy in 2023/24 – how can you protect yourself?

More than £1.5 billion in tax was taken by HMRC from special investigations into the wealthy in the 2023/24 tax year, more than double the £713 million it yielded in the previous year.

The tax was collected by HMRC’s Wealthy and Mid-Sized Business Compliance Directorate, a team whose job it is to track down individuals who are suspected of leaving some of their tax bill unpaid, according to law firm Pinsent Masons.

The money was raised from some of Britain's wealthiest, defined by HMRC as individuals with incomes of over £200,000, or those with assets above £2 million.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The total tax that was collected by HMRC from the wealthy in 2023/24 was £5.2 billion, up from £4 billion in the previous tax year.

The government has told the taxman to do more to locate unpaid tax bills.

In her Spring Statement, chancellor Rachel Reeves gave HMRC an extra £100 million to recruit 500 more compliance officers with the hope they can raise £1 billion in extra tax revenue by the end of the 2029/29 tax year.

As a result of this initiative, Pinsent Masons says special investigations into wealthy taxpayers could become more common as HMRC tries to close the £1.9 billion ‘tax gap’ – the difference between total tax liabilities and the tax actually paid.

Ian Robotham, director of tax dispute and investigations at Pinsent Masons, says HMRC has been set “very hard” targets for extra tax collection by the chancellor, and that it is “hard to see” how these targets will be achieved without a “sharp” rise in tax investigations into the wealthy.

He adds: “Wealthy taxpayers who know they have tax issues to settle should urgently seek professional advice.

“Penalties in respect of inaccuracies can be mitigated down where taxpayers are proactive in contacting them to tell them about and assist them in resolving inaccuracies.”

Furthermore, Pinset Masons says HMRC has been increasing its investment in AI tools and ‘big data’ techniques to assist officers in collecting tax, making it even more important to be diligent with your tax returns.

How to make sure you’re reducing your tax liability

With special investigations into the wealthy potentially becoming more commonplace as the government tries to crackdown on unpaid tax, it is a good idea to make sure that you are being smart with your money.

Ian Futcher, financial planner at Quilter, says that once you cross the £200,000 income threshold “the tax system begins to bite in multiple places”.

Futcher says that the effective income tax rate for those earning between £100,000 and £125,140 is already above 60% as the personal allowance tapers out, adding that, for high earners, “additional income and capital taxes can make things worse without careful planning”.

For high earners, it can be worth taking steps to make sure they are minimising their total tax liability.

One of the “key” ways to do this, according to Futcher, is through pension contributions.

Though the annual pension allowance is reduced for some high earners, Futcher says “pensions remain a powerful tool”, though notes that “soon pension wealth will become liable to inheritance tax and therefore this needs to be thought about.”

Wealthy individuals with £2 million or more in assets may be particularly concerned about inheritance tax, as the Residence Nil Rate Band (currently £175,000) tapers away when estates exceed this value – meaning more wealth is liable to IHT.

To make sure you aren’t caught out by this, Futcher says “trust planning, surplus income gifting, and the use of onshore bonds within trusts can help to reduce the taxable value of the estate without sacrificing control or liquidity”.

He adds: “Spreading asset ownership across family members using lifetime gifting strategies, particularly of assets expected to appreciate, can also be highly effective over time.”

“High earners should also pay close attention to how they invest,” says Futcher.

“Structuring portfolios to use ISA allowances each year fully and offsetting gains using capital losses can all help mitigate capital gains tax for any investments not within an ISA.”

Futcher says using family investment companies or limited partnerships can “offer flexibility and intergenerational planning advantages too” but points out these “need to be carefully planned and expert advice is key”.

For example, using a spouse’s ISA allowance and/or a child’s JISA allowance could be effective.

Ultimately, Futcher says the tax system is riddled with quirks and thresholds that “penalise the unwary” and that “the wealthier you are, the more likely you are to stray into inefficient territory without a detailed plan”.