HMRC and Unexplained Wealth Orders

Posted on 12 April 2018

HMRC and Unexplained Wealth Orders

Introduction

On 31 January 2018, the same legislation that brought into force the two new corporate offences of failing to prevent the facilitation of tax evasion in September 2017, also introduced new powers that require individuals to explain the source of assets.

The new powers, called Unexplained Wealth Orders ("UWOs"), allow certain government agencies, including HMRC, the ability to confiscate assets in circumstances where individuals cannot explain the source of their wealth, or refuse to do so.

Although it has been cited that the intended use of UWOs is to enable enforcement agencies to seize the assets of those associated with organised crime, the threshold amount for making such an application is very low. It is important that individuals and their advisers understand the potentials risks that this new power may hold.

Politically exposed persons ("PEPs") or those closely associated with PEPs will be a target for the use of these new orders.

How is a UWO obtained?

A UWO must be applied for at the High Court and the relevant authority must satisfy the court that there is reasonable cause to believe that the individual holds assets of more than £50,000.

The judge must then also be satisfied either that:

  1. There are reasonable grounds to suspect that the individual, or a person connected with them, has been involved in a serious crime – such as tax evasion. UWOs do not require any criminal conviction, meaning that an HMRC officer may apply for such an order based only on their suspicions as to the taxpayer's position; or
  2. That the individual is a non-EEA PEP (or associated with a PEP) and there are grounds to suspect that the individual's known income would not explain the ownership of the property.

This means that the authorities may make such order against a PEP even where there is no suspicion that they are involved in any criminal activity.

What does a UWO do?

If no response is provided to the UWO or the response is unsatisfactory, there is an automatic presumption that the asset constitutes recovery property for the purposes of a civil order under the Proceeds of Crime Act 2002.

The authorities will be able to apply for an interim freezing order, to prevent the asset from being sold or transferred, meaning that the asset cannot be disposed of before a response is provided.

An extension of the existing powers

From 16 April 2018 these new powers are set to increase.

HMRC and other relevant officers will then be able to:

  1. Search, seize and detain 'cash' which is broadly defined within the legislation to include gaming vouchers, casino tokens and betting receipts.
  2. Seize specific items of valuable property, such as precious metals and stones, watches and artistic works.

Further, HMRC will also be given the power to forfeit cash, including monies held in bank and building society accounts without the need for a court order.

Conclusion

With government agencies already securing the first two UWOs against PEPs and the introduction of increased powers this month, there are concerns that UWOs may be used by HMRC as a tool to support general tax enquiries and investigations.

Where mere suspicion is enough for an HMRC officer to consider deploying these powers, it is essential that those with complex income and asset positions seek advice as soon as possible.

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