HM Revenue and Customs (HMRC) is preparing to crack down on wealthy Britons who use legal tax arrangements to reduce inheritance tax and capital gains tax liabilities under a major proposed expansion of its enforcement powers.
The tax authority is seeking to widen its Uncertain Tax Treatment regime, first introduced for large businesses in 2022, to include private individuals benefiting from tax advantages worth more than £5million.
Under the proposals, affluent taxpayers would be required to inform HMRC when using arrangements that rely on disputed or uncertain interpretations of tax law.
HMRC would then examine whether it agrees with the taxpayer's interpretation of the legislation.
Trusts are also set to be brought within the scope of the expanded regime as HMRC intensifies efforts to close the tax gap.
The consultation on the proposals closes in three weeks, with HMRC additionally planning to extend the rules to cover inheritance tax, capital gains tax, stamp duty and National Insurance contributions.
Labour figures show the tax gap stood at £46.8billion during the 2023-24 financial year.
Of that total, HMRC estimates £5.4billion resulted from taxpayers interpreting tax legislation differently from the authority.
Individual taxpayers account for just 10 per cent of the overall tax gap, while small businesses contribute around 60 per cent.
HMRC targets wealthy Britons in inheritance tax crackdown over legal loopholes
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Fiona Fernie, a partner at tax firm Blick Rothenberg, warned the proposals risked creating the impression that wealthy individuals were being singled out unfairly.
"This risks being perceived as HMRC unfairly targeting one group, and allowing the other to 'get away with' not paying its dues.
"This proposal is yet another mismatch between who is actually responsible for the majority of the tax gap, and who is being targeted by HMRC."
Ms Fernie also cautioned that continued focus on affluent taxpayers could appear to be "political grandstanding rather than a proportionate, evidence-led approach to reduce the gap".
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The expanded rules would introduce a new requirement forcing taxpayers to notify HMRC whenever multiple reasonable interpretations of tax law exist and the authority's position remains uncertain
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Jonathan Burt, a partner at law firm Charles Russell Speechlys, said the proposals highlighted difficulties surrounding unclear tax legislation.
He said: "This is the central paradox of the consultation. In areas like inheritance tax and stamp duty, where the law can be genuinely unclear and subject to interpretation, this would mean telling HMRC you might be wrong when nobody, including HMRC, knows what right looks like."
Businesses currently face financial penalties if they fail to notify HMRC about relevant tax arrangements covered by the existing UTT regime.
Initial failures can result in fines of £5,000, with further breaches carrying penalties of £25,000, and rising to £50,000 for repeated infractions.
Since the regime was launched in 2022, HMRC has received 30 notifications from businesses relating to roughly £1billion in potential tax considered at risk.
Ellen Milner, director of public policy at the Chartered Institute of Taxation, described the proposals as a significant widening of the existing framework.
Ms Milner said: "These proposals are a significant widening of the regime, reaching beyond large businesses into individuals, trusts and additional taxes, and potentially introducing a new, much broader trigger for notification.
"The key test will be whether that expansion can be delivered in a way that remains clear, proportionate and workable."
She also questioned whether the Government and HMRC should share greater responsibility for reducing legal uncertainty by simplifying tax legislation and issuing clearer guidance.
An HMRC spokesman defended the proposals and said the measures were designed to help tackle billions of pounds in disputed tax liabilities each year.
He said: "It's right that we look at measures which help our customers get their tax right, for both individuals and large businesses.
"The measures we're consulting on aim to tackle the tax gap caused by differences in legal interpretation, worth billions of pounds every year."
The spokesman confirmed stakeholders would be able to provide feedback before any final decisions on the proposals are made.