Jean-Yves Gilg

Editor, Solicitors Journal

HMRC retrieves over £150m in unpaid capital gains tax

HMRC retrieves over £150m in unpaid capital gains tax


Chancellor's refusal to reduce CGT for investors maintains pressure on buy-to-let sector

HMRC has recovered an extra £154m of unpaid capital gains tax (CGT) over the last year, Collyer Bristow has revealed.

In data provided by the Revenue to the private client law firm, £115m of the extra CGT was collected by HMRC's local compliance teams, which deal with individuals and SMEs.

The remaining £39m was obtained by the newly created Counter Avoidance Directorate, which focuses on 'marketed tax avoidance schemes'.

James Badcock, a partner at the firm, said HMRC has achieved 'real success' targeting CGT avoidance schemes over the last few years, as well as lower-level abuse and error.

'The schemes uncovered use a range of mechanisms to reduce an individual or company's CGT bill. Some create artificial capital losses which can be used to offset the tax, whilst others make use of offshore trusts and structures to exploit available exemptions or loopholes.'

A number of high net worth individuals (HNWs) have come under scrutiny for using the loopholes over recent years. Lured in by the lucrative schemes offered by banks and niche tax advisory practices, clients have been attracted by reducing tax payments on the disposal of high-value interests in businesses and property.

Badcock added: 'There is also, of course, fairly widespread underpayment going on outside of these marketed schemes. Much of the work by HMRC's local compliance teams is likely to relate to individuals or businesses which simply fail to declare the disposal or transfer of an asset, for example, or significantly undervalue it when reporting to the Revenue.

'Challenges also often arise in relation to assets passed between family members. When parents sell or transfer a property to their offspring, for example, it often gives rise to a chargeable gain. Where this goes unreported the Revenue will look to follow up.

'Whilst in many cases there is likely to be a legal justification for a scheme, HMRC can be expected to look closely at anything which it goes against the spirit of the law and of course any deliberate or negligent underpayment.'

Last month the chancellor announced a decrease in CGT for businesses, which saw the higher rate reduced from 28 per cent to 20 per cent and the basic rate from 18 per cent to 10 per cent come into effect from April.

The new rates were not extended to property investors, however, who will continue to pay the higher rate of CGT on second homes or properties.

Badcock said the decision not to extend reductions to this group alongside soaring property prices - particularly in London - will see many face a substantial CGT bill when they come to sell, and maintains the heavy pressure on the buy-to-let sector.

'Investors will be more keen than ever to ensure tax-efficiency. Planning to reduce CGT paid within reason is sensible but taxpayers must seek advice and ensure that they do not cross the line into what could constitute abusive avoidance or evasion.

'The revenue has seen healthy progress from investigations into this area in the last year and is likely to keep an eye on it going forward.'