'Suspiciously rich' face having to explain their wealth

02 September 2015

Mike Down and Gary Heynes

Weekly Tax Brief we have regularly reported on HMRC pressing ahead with an increasingly robust approach to tackling tax evasion and avoidance, including a new ‘strict liability’ criminal offence of hiding taxable income and gains offshore. These new measures form part of the worldwide drift towards wealth and tax transparency and dealing with criminality, not just in financial matters but against corruption more widely.

Now we see reported in the press the government’s thoughts on challenging those who unexpectedly and suspiciously 'get rich quick'.

The idea is that 'unexplained wealth orders', similar to those already in place in Ireland, will be introduced in the UK. The orders would require recipients to disclose and evidence the source of their sudden wealth. Failure to do so satisfactorily would result in the Courts pursuing the assets of the recipient and seeking surrender.

It is understood that use of the orders in Ireland is regarded as an effective approach in tackling organised crime. However, with the existing array of anti-money laundering rules, including 'source of funds' checks and the common reporting between countries coming soon, do we need another system to add to this lot? Would it add anything new to what we already have and if it will, shouldn’t it combine with what is already there?

We also wonder how the UK government would seek to apply the orders. Would for instance HMRC want to get involved from the outset and carry out an investigation alongside or in tandem with the responses made by people who receive an order? There must be a concern that as more checks are required, in different ways for different agencies, it becomes easier for both the wealthy individual and their advisers to fall foul of one of the rules and be subject to heavy penalties and possibly criminal charges. Some more considered, and joined-up thinking is required to get the balance right.