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Do you have assets overseas that you haven’t declared?

19th July 2018

Do you have overseas income and assets that have not previously been declared to the UK tax office? If so, there is an opportunity to disclose these before 1 October 2018 to avoid much higher penalties after that date.

Tax Partner Paul Morris explains.

HM Revenue & Customs (HMRC) is providing a short window of opportunity for taxpayers to declare any offshore income and gains they have under what is called a “Requirement to Correct” measure.

For the period up to 30 September 2018, overseas interests can be declared incurring normal penalties and interest, which will increase considerably where declared after 30 September 2018.

So now is a good time to bring your tax affairs up to date before it becomes too costly to do so. Bishop Fleming can help you with this by ensuring any declaration is made in time and minimises as far as possible the incidence of tax and penalties.

The Requirement to Correct measure can relate back up to 20 years, depending on whether the non-disclosure was careless, a mistake or deliberate, so Bishop Fleming can produce a report for the tax office that presents the information in the best possible light to minimise tax, penalties and interest. We can also advise on what is declarable and what does not need to be declared.

Who is affected by the Requirement to Correct?

The measure is not just aimed at individuals; companies and trusts are also affected. Undeclared income and assets could, for example, cover anything from the renting out of an overseas holiday home to a company acting as a non-resident landlord letting property in the UK.

Taxes covered by the measure include income tax, capital gains tax and inheritance tax.

One area of interest for the tax office will be those who have moved to the UK from overseas and who still have assets and income in their original country. If they are non-domiciled, they might not be caught, but they will be caught if they lose their non-dom status.

What is meant by offshore?

In the context of this measure, offshore can include the Channel Islands, the Isle of Man and the Republic of Ireland.

What if I don’t declare?

Making a declaration before 1 October 2018 will attract normal penalties and interest. This could still mean a penalty of up to 100% of the tax due where there was deliberate concealment of assets, but this is likely to be reduced substantially where the taxpayer cooperates fully with HMRC and any non-declaration was not deliberate.

But if a disclosure is not made until after 30 September 2018, there will be a much bigger penalty.

from 1 October 2018 there will be an eye-watering penalty of 200% (double the amount) of any tax liability that has not been declared. It may be possible, where the taxpayer fully cooperates with HMRC, to reduce this down to 100%.

There is also an asset geared penalty of up to 10% of the value of the overseas asset in more serious cases (on top of the standard penalty) where the error/ omission was known but it was not corrected before 30 September.

In addition, extra penalties can also be charged where assets or funds are moved in order to avoid detection. HMRC can also “name and shame” certain taxpayers.

It is important to be aware that HMRC now exchanges information with more than 100 other jurisdictions, so the department is aware of assets that have not previously been disclosed. That being the case, it is far better to provide an unprompted disclosure at reduced penalties rather than being prompted by HMRC after 30 September 2018 and incurring much higher penalties.

What action can I take?

HMRC is currently sending out letters to taxpayers where it has identified offshore sources of income through the Common Reporting Standard (CRS) exchanges of information with offshore jurisdictions. This could lead to a future enquiry.

In these cases, HMRC is encouraging recipients to seek a ‘ health check’ of their affairs to ensure that their compliance is up to date and correct, or suitable disclosures are made.  We can assist with this health check if you have received such a letter.

If you feel that you may be affected by the Requirement to Correct, it is important to contact our tax team as soon as possible so that we can advise you on the best course of action.

Such action could include, for example, the submission of a tax return, or amending a return that has previously been submitted, or informing the tax office of the need to pay tax.

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