Written evidence submitted by Tax Justice UK (TWI0004)
Executive Summary
The UK tax system and HMRC is institutionally structured in a way that facilitates tax avoidance by the wealthiest. As well as looking into what resources HMRC needs to function effectively and possible different definitions of high wealth individuals, we recommend the committee must also consider the wider architecture of the tax system as part of its inquiry.
Our key recommendations are:
Defining the Wealthy
HMRC’s current definition of high wealth individuals is not fit for purpose. It defines them as people with a yearly income of £200,000, or with assets worth over £2m, which is 850,000 people. With house price inflation, especially in London and the South East, many ordinary people now fall into this category simply because they own a home in a particular place.
This in practice leads to resources not being prioritised effectively, as too many people will fall into the high wealth category. One billionaire is worth five hundred people with £2m and it is the former who are responsible for the most tax avoidance.
Instead, HMRC should prioritise its resources on the super wealthy - those with assets of over £10m, which according to HMRC’s latest figures, is around 40,000 individuals. This would ensure that HMRC’s limited resources can focus on those who are avoiding the most tax and have the largest ability to pay and raise significant revenue for our economy and public services.
Recommendation: HMRC should redefine High Wealth Individuals to those with assets worth over £10m.
HMRC Resourcing
HMRC is currently under-resourced and staffed relative to its essential role in collecting tax and closing the UK’s tax gap. The government’s commitment at the October 2024 budget to increase investment and hire 5,500 new staff in HMRC was very welcome. This is forecast to raise £6.5 billion by 2029-2030 and is a good start in tackling the tax gap. However, the recently published NAO report on collecting tax from wealthy individuals states, ‘HMRC has not yet determined how many of these will be assigned to the wealthy team. It expects most new recruits will be at entry level, whereas the wealthy team has identified its priorities as more experienced tax professionals with particular expertise in tackling offshore and international risks.’ Further, the UK’s tax gap currently sits at a huge £40bn, more than three times the size of the Ministry of Justice’s budget. This shows there is still a long way to go to enable HMRC to collect the right tax from wealthy individuals, something that can only be achieved through additional funding and resources.
Until 2017, HMRC had a unit dedicated to collecting tax from wealthy individuals. This has since been disbanded, despite this being a standard feature of peer tax authorities across the OECD and a recognised global best practice. The recently published NAO report on collecting tax from wealthy individuals states that it was “not clear that the CCM model is providing sufficient coverage of the wealthiest taxpayers”, with only half the top 60 Income Tax payers and 50 Capital Gains Tax payers having an assigned compliance manager.
The recent NAO report confirms that HMRC does not know the extent to which wealthy individuals are avoiding tax through offshore accounts due to the limitations of the Common Reporting Standard. HMRC believes that this is one of the highest risks for tax avoidance - yet only 5% of its casework is focused on offshore non-compliance. On this issue, the report concludes that “this raises the possibility that underlying levels of non-compliance among the wealthy population could be much greater than previously thought.” (pg. 35).
This is because the published ‘offshore tax gap’ is limited to bank accounts with actual people’s names attached, in CRS jurisdictions. This excludes all funds held in companies or trusts, and income coming directly to taxpayers from offshore property and assets (i.e. most forms of offshore wealth).
Whilst completely eliminating the tax gap isn’t likely, or generated exclusively by high
wealth individuals, the government should look at further investment in HMRC to significantly reduce the gap. New technology and modernisation of the department is welcome, although not without difficulties that are beyond the scope of this inquiry. This should include additional well trained and well paid staff,the restoration of a dedicated High Wealth Unit and resources towards properly tackling the offshore tax gap. Too often, officials at HMRC, and indeed other government departments, must leave for the private sector in order to receive remuneration equal to their skills and experience; this needs to be addressed so that skills and institutional knowledge are retained.
Recommendation: HMRC needs greater resources, especially in staffing levels and pay, in order to tackle the tax gap. This should include restoring the HMRC High Wealth Unit and effectively tackling the offshore tax gap.
Architecture of the Domestic Tax System
The vast majority of taxpayers are on Pay As You Earn (PAYE) which automatically pays the amount of income tax and NICs people owe. High wealth individuals, on the other hand, are able to take advantage of a range of tax exemptions, loopholes and other mechanisms so that they pay proportionally lower taxes than people who earn an income solely through work. Indeed, wealthy individuals according to HMRC account for 50% of lost personal tax revenue, despite being only 2% of taxpayers.
Whilst many high income individuals will also be on PAYE in some form, the very wealthiest individuals don’t use this system for the bulk of their income. For instance, most wealthy people will receive their income from wealth - such as dividends, rents, and corporate profits, which are all taxed at significantly lower rates than income from work. Taxes on work currently bring in almost half of all government tax receipts, while taxes related to wealth, such as capital gains and stamp duty, are only set to bring in £1 out of £25.
In the UK, there are over 1,100 tax loopholes, exemptions and breaks - yet only a small proportion of these have been costed or assessed for their impact. HMRC itself admitted that it only knows the cost of 365 of these tax reliefs. Ordinary people do not take advantage of these loopholes as they are on PAYE, it is only high wealth individuals who can do this.
Greater resourcing at HMRC would be exceedingly welcome - yet it is the wider tax system, with its large number of exemptions and differential taxation rates on income from wealth
compared to work, that facilitates the wealthiest avoiding paying their fair share of taxes. Until this is reformed, the issue of tax abuse through legal means will be ongoing, fuelling inequality and depriving HMRC of much needed revenue.
Recommendation: The committee should look at the wider tax architecture as part of its investigation or a future inquiry, in particular the costing and assessment of tax loopholes and exemptions and the equalisation of taxes on income.
Tax Havens and British Overseas Territories
Although the role of the British Overseas Territories goes beyond the formal scope of this inquiry, it is vital for any investigation into effective tax collection from the wealthiest individuals to consider how they facilitate tax avoidance.
As outlined above, alongside domestic tax exemptions and loopholes, many high wealth individuals can take advantage of overseas tax havens, notably through the British Overseas Territories. Ordinary people cannot shift their incomes through tax havens - only wealthy individuals and large corporations can do this.
Tax Justice Network’s 2024 State of Tax Justice Report shows that the UK and its Overseas Territories and Crown Dependencies are responsible for over a quarter of all countries’ tax losses (26%), costing countries US$129 billion a year. In 2024, three British Overseas Territories - The British Virgin Islands, The Cayman Islands, and Bermuda - were ranked at the top of the Corporate Tax Haven Index; the CTHI evaluates a jurisdiction’s laws, and monitors the volume of corporate financial activity entering and exiting jurisdictions, to create a clear picture of the world’s biggest enablers of corporate and individual tax abuse.
The UK itself loses US$45 billion a year as a result of this tax abuse.
The UK should see that all its Overseas Territories and Crown Dependencies implement fully accessible and transparent ‘Public Registers of Beneficial Ownership’ to ensure transparency of which individuals or companies own an asset registered in their jurisdiction, so that they cannot avoid paying tax. At the moment, few, if any, assets held in the territories will show up in HMRC’s assessments.
The UK introduced its own public register of beneficial ownership (PRBO) in 2017. In 2018 cross-party efforts led by Maragret Hodge were successful in amending the Sanctions and Anti-Money Laundry Act requiring the government to act unless Overseas Territories introduced their own PRBOs by the end of 2023. In 2024 no Overseas Territories – except Gibraltar – have introduced PRBOs and there is a deadline in June 2025 for them to do so.
Recommendation: The committee should look at the role of the British Overseas Territories in facilitating tax avoidance by the wealthiest, either in this inquiry or as part of a future inquiry. This must include Publicly Accessible Registers of Beneficial Ownership.
May 2025