Tax investigation - stressed!

jedeye

I've recently been sent a letter from the HMRC asking why I've got so much savings in my current account. As I'm trying to buy a new house I've let all of my e.g. 1 year fixed rate savings mature and transfered the money back ready to pay a large deposit on the house. I think this large increase of savings in one place alerted the HMRC to investigate.

I've got one PAYE job, never filled out a tax return, pay basic rate of tax, and most importantly I'm a solid saver and not a spender. I lived 9 years at home and didn't pay my parents rent or any expenses thus saving a big deposit for my current home.

The only problem is that perhaps like most parents who can afford it, they have also given me large sums of money to assist me with the purchase of my flat, when my child was born and paying for my wedding.

Should all of this have been declared? I don't want to get my elderly parents in trouble. What are the acceptable limits of gifts from family?

Should I tell the same 'story of my life' to the HMRC or do exactly what they have asked for i.e. x years of bank statements and how I financed the purchase of my home.

I'm completely stressed with this - I'm thinking about doing a complete trail of my finances since when I started work 13 years ago. There is no deadline of response either - how long do I have to compile my audit trail of my investments?

Because I've always chased the best interest rates I've moved my money a lot.

Thanks in advance.

jedeye

fengirl_2

It sounds to me as if you are stressing over nothing. You can account for all your savings and presumably your parents will also support your claims that they have given you large sums of money. The only flaw in all this is if your parents' gifts to you came from undeclared earnings or investments. Assuming this is not the case, then there is nothing to worry about. You do not have to declare gifts and the only future problems might be with IHT when your parents die, but lets not let this muddy the waters now.
I wouldn't do an audit trail of your investments - let HMRC do this, they have unlimited time and resources. Just supply the details they want and answer their queries honestly and striaghtforwardly. If they havn't given you a time limit to produce the info, thats a bad bad oversight on their part!

bosseyed

Don't worry! In my eyes, whilst not a nice thing to suddenly get through the door, its not something you need to particularly worry about.

As the above post, I wouldn't bother trying to do your own audit trail - let HMRC do this as its their job. Give them all the information they ask for and be as honest as possible - if they bother to delve any further with this they'll see that all the money you have can ultimately be traced back and accounted for with a clear account trail to follow back to your parents gifts etc.

If you had large and mysterious cash payments going in with no obvious source then its harder to prove the origin, but its fairly simple for them to check your story out and come to the conclusion that you've done nothing wrong.

jedeye

Thanks for your responses already.

I will try to look for any limits on gifts on the HMRC website tonight, but do I just say in my response to the HMRC that e.g. this £25,000 was given from my parents account in contribution to a deposit for my first home?

How common is it that the HMRC would respond to my response with a request for more of my investment history? This is why I thought to give them a fuller response than they asked - but I can see the sense in simply responding with what they ask!

jedeye

fengirl_2

There is no limit on gifts and the tax office won't be interested in any possible IHT liability in the future. Yes, just say the £25k came from your parents - they can ask for proof if they want to.
They will ponder the info they have given and come up with a list of queries - let them do this, don't do their work for them as you have done nothing wrong.

Pennywise

As an accountant, I've been defending my clients for over 20 years against tax enquiries and over that time, having done literally dozens of enquiries, I've gained some experience of what works best.

I now recommend to respond to the first enquiry letter with as much detail as possible, including copies of supporting "proof" documentation for as much as possible. I work on the basis of the optimum solution being just one reply letter to the inspector, giving so much information and supporting documentation, that they don't have to ask for more information, and so, will just close down the enquiry as long as things stack up.

In my experience, just giving them simple short answers doesn't satisfy them and they come back wanting more detail for the answers already given, and almost always with another load of questions following on from the first answers. You can easily end up "playing ping pong" sending letters back and forth and assuming a month delay in response each time (quite likely from the tax end), the enquiry could still be ongoing in a years' time.

Spending an extra hour or two now getting your paperwork out, copying relevant bits, and adding a little extra detail in your reply could really save you a lot of time in the future.

Funnily enough, I've just received a closure notice a couple of weeks ago re a tax enquiry. The tax return in question was complex and the tax inspector raised about 15 "open ended" questions. There were quite a few potentially "difficult" areas on the tax return, but the inspector didn't seem to have noticed them. In consultation with my client, I went for a way over-the-top response, sending them a reply lasting several pages of narrative and explanation and also a large box full of paperwork. There was absolutely nothing more that we could have provided to answer their questions. We received their closure notice barely a week later with no further questions - I can't believe they looked at it all in such a short space of time, so can only assume they "took a view" that things were in order after all, and just closed it. I honestly think that had the inspector been given just a short simple response with no "flesh on the bones", they'd have not only gone on to ask for more detail, documents, etc., but may well have also noticed some of the more "difficult" areas of the return which they clearly hadn't noticed, but which could have been rich pickings for them if they had bothered to ask.

Everyone who deals with tax enquiries will have different opinions and advice, based on their own unique experiences. There is no right or wrong answer. My experience suggests that full and detailed responses are better, even to the extent of second-guessing their next questions. Obviously others have the opposite experience and everyone's views have to be respected. At the end of the day, it is you who is under enquiry and you have to make the call as to how to proceed.

Rolo_Tomasi

I'm quite surprised that the Revenue have contacted you for this information as you seem to be off their radar since you do not file a tax return. Before you provide any information I would double check that the letter has come from the Revenue and not from some scoundrals trying to obtain your bank details.

PlutoinCapricorn

Rolo has made a good point: I do know that HMRC look out for certain things that suggest that people may be concealing income, but surely having savings is not suspicious in itself? All the more as the interest is automatically taxed at source.

tyllwyd

PlutoinCapricorn wrote: »

Rolo has made a good point: I do know that HMRC look out for certain things that suggest that people may be concealing income, but surely having savings is not suspicious in itself? All the more as the interest is automatically taxed at source.

(Assuming it is genuine), do you think it could be that the bank itself notified them in case of money laundering? I'm just speculating, but perhaps having an unusually high amount of cash in a current account - not in a savings account - and regularly receiving large amounts of money from a private bank account or as cash deposits puts the bank on alert? Obviously the OP knows that his parents are not drug dealers or international criminals, but the bank doesn't.

theGrinch

Rolo_Tomasi wrote: »

I'm quite surprised that the Revenue have contacted you for this information as you seem to be off their radar since you do not file a tax return. Before you provide any information I would double check that the letter has come from the Revenue and not from some scoundrals trying to obtain your bank details.

that was my intial thought. its a bit strange having your savings flagged up. could it have benn the bank itself? if it was a one off £25k then that would be very strange (unless in cash). there are many people saving to buy a home that receive parental gifts.

and Im sure there are an equal number faced with low bank rates keeping money in instant access accounts ready for improved rates or to move into shares!

we are edging toward a police state at this rate!

jedeye

I'm 100% sure that it's from the HMRC - but guess what - I thought I was being ultra paranoid that Natwest marked my account for special attention for the HMRC - from your suspicions also I'm not too sure now!

For me it was too much of a coincidence that I recently went in for a mortgage chat and by then I was 'collecting' my deposit into my current account and the guy asked me 'how come I've got so much savings'. I simply said 'savings' and was pretty evasive as I didn't want to explain to him my personal savings history. And then it's like 3 months later I get a letter from the HMRC.

And joy - tommorrow I have to go back to Natwest and ask them for 4 years of bank statements. Hopefully this won't cost too much.....

The letter from HMRC states: 'if you can let me see copies of your bank statements'. Would they accept online printouts?

Thank you again for all responses. Much appreciated and please keep the info coming and I'll keep you all updated.

jedeye