In a bid to narrow a "tax gap," the UK government wants to expand powers used to handle legal interpretation uncertainties so that they can be resolved more quickly. A prominent lawyer in the private wealth field sees such an extension as a threat to privacy and legitimate tax and estate planning.

The proposal to extend revenue-raising powers in the UK to cover individuals' trusts in the country’s Uncertain Tax Treatment (UTT) regime – designed to close a supposed multi-billion-pound “tax gap” – could be “disaster” for private clients and hit estate planning, a prominent lawyer warns.

On 12 March, HM Revenue & Customs announced that the proposed updated regime – originally introduced in 2022 by the prior Conservative government – would extend UTT to capture more legal interpretation uncertainties. A consultation is running until 4 June.

In its statement, HMRC said the regime was initially brought in to “bring legal interpretation uncertainties to HMRCs attention, so they can be discussed and resolved sooner. Not only does this promote fairness and transparency but also contributes towards reducing the legal interpretation portion of the tax gap.”  

HMRC reckons that the total tax gap was £46.8 billion ($61.8 billion) in the 2023 to 2024 tax year. The “legal interpretation portion” of the tax gap was £5.4 billion, or 12 per cent of that figure. HMRC defines the “tax gap” as the difference between the amount of tax that should be paid in theory and what is actually paid. Critics have argued that while the concept can be theoretically useful, there are limits. Collecting certain taxes can be so high as to outweigh hoped-for revenues.

James Quarmby (pictured below), partner and private wealth head at Stephenson Harwood, and member of this news service’s editorial board, was blunt in his warning about the dangers of widening the UTT regime. In a LinkedIn post last week, Quarmby described widening the UTT system as a “potentially sinister move.”

James Quarmby 

Previously only corporations with £2 billion plus balance sheet values were caught, so most people simply didn’t bother considering this law, which was originally introduced in 2022. "If this goes ahead, it could be a disaster for private clients as there is no balance sheet threshold – only a requirement that the 'position’ has value of £5 million or more. That will catch a lot of estate planning transactions,” Quarmby wrote.

“Ordinary people and trustees will be expected to spot 'uncertain’ tax positions – even when the law is grey or HMRC’s own guidance is unclear. So, the legislation will require you to know to whether a tax position is 'unclear’ or not and make a report to HMRC. Get it wrong, and you face penalties,” he wrote.

With governments under pressure to raise revenues as spending and debt soars, there are worries that respect for privacy, legitimate tax planning and enterprise will suffer. The UK already has one of the developed world’s most complex tax codes, running at more than 22,000 pages long.

Wider coverage?
The UTT regime covers corporation tax, value added tax, and income tax where relevant to pay-as-you earn (PAYE) and partnership returns. The government wants to expand the net to Stamp Duty Land Tax on residential and non-residential properties; National Insurance Contributions; withholding taxes under the Construction Industry Scheme; capital gains tax, and inheritance tax.

In the 2025 autumn Budget, the UK finance minister Rachel Reeves said the government would consult on expanding the system.

Legal obligations
“Last year, we warned that HMRC’s view of cooperative compliance (as expressed in recent 'promotional material’) does not always strictly align with taxpayers’ legal obligations,” Addleshaw Goddard, a law firm, wrote in a briefing paper. “This new consultation expressly builds on that promotional material and appears to be the first step in aligning the legal position with HMRC’s desired approach.

“Currently, the UTT regime applies to bodies corporate and partnerships that (by themselves or with other group companies) have either an annual turnover above £200 million or a balance sheet total of over £2 billion. For UK resident taxpayers these thresholds apply to the total turnover or balance sheet; for non-UK residents they apply to so much as is attributable to UK activities.

“In practice, the extended rules would likely capture only wealthy individuals and high value trusts, as notification is required only where the potential tax advantage exceeds £5 million. However, it is worth noting that the Government proposes to bring all individuals and trusts into scope, rather than specifically defining 'wealthy’ or 'high value’,” the firm said.

Privacy worry
Quarmby said one concern is that sensitive family and trust arrangements could be exposed to HMRC, even when there is no wrongdoing. 

“This move busts through taxpayer privacy as tax advice will end up being disclosed to HMRC,” he said. “Legitimate planning and structuring could be stifled, as clients and advisors fear triggering disclosure or scrutiny. Compliance costs will soar, with families and trustees forced to pay for professional advice just to avoid falling foul of the rules,” he said. 

While the proposed wider regime will start with a £5 million value threshold (vs £2 billion balance sheet value for corporates), it is an open question whether those thresholds will drop, Quarmby said.