‘Unexplained Wealth Orders’ explained

Have you had an Unexplained Wealth Order?

Unexplained Wealth Orders: this fairly new law allows government departments to investigate your financial affairs if they can’t see where your wealth came from. Does this mean HMRC can now go fishing into your tax records when it wants to?

There are strict rules that say when HMRC is entitled to start an investigation or enquiry. It is allowed to make a relatively small number of random checks into self-assessment tax returns, otherwise it must have a reason to start an enquiry. “Unexplained wealth orders” (UWOs) widen these powers.

Wealth v income

Since 1 February 2018 UWOs can be used to allow government departments, including HMRC, to investigate an individual’s financial affairs if it appears their wealth isn’t backed up by sufficient income to justify it. However, HMRC can’t act on a whim, UWOs will only be issued if:

  • You own assets worth £50,000 or more, and
  • HMRC, or other government departments, can prove there are “reasonable grounds” to suspect something is awry

Only then will the High Court (Court of Sessions in Scotland) issue a UWO. “Reasonable Grounds” is a rather vague condition and it probably won’t be difficult for HMRC to convince a judge.

unexplained wealth orders - image of a bank
Unexplained Wealth Orders can investigate individuals or organisations that hold funds for individuals, like trusts.

Who can be targeted?

UWOs can be obtained to look into the financial affairs of individuals or organisations that hold funds for individuals, like trusts.

Government intentions

While most taxpayers will easily meet the £50,000 condition, the purpose of it being so low isn’t to catch everyone in the net. It’s to give HMRC a crack at very wealthy individuals who are able to hide most of their wealth, but are unlikely to be able to manipulate it below £50,000.

Only time will tell how HMRC will make use of UWOs and the willingness of the High Court to assist. If you find yourself at the wrong end of a UWO, it’s serious and you should take advice from your accountant and probably a solicitor too.

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