In this article our Tax Manager, Leila Kiany considers what the new requirement means for individuals with offshore assets.
What are the new requirements to make a declaration?
HMRC put in place a period known as the ‘Requirement to Correct’, where individuals could declare and settle tax due on offshore assets. This gave until the disclosure deadline of 30 September 2018 to make declarations to correct past tax filings. If this was completed before the deadline, the tax and interest could be paid, and the previous penalty rules would apply.
What are the penalties if I missed the disclosure deadline?
A failure to disclose will now result in new tougher penalties which can potentially include the following:
- A minimum penalty of 100% of the tax involved and an upper limit of 200% of the tax due, depending on several other factors;
- An asset based penalty of up to 10% of the value of the asset;
- Enhanced penalties based on the individuals motive (careless or deliberate avoidance).
What is covered?
The rules relate to income tax, capital gains tax and inheritance tax owed to HMRC which involve offshore matters. This includes income from a source in a territory outside the UK, assets situated in a territory outside the UK, activities carried out wholly or mainly in the UK.
- You took/transferred payments from your UK business into an overseas account. A failure to declare these payments to HMRC, as well as the interest received must be corrected.
- You have an overseas holiday home which you rented out and didn’t declare your rental income or a capital gain on the sale of the property. A failure to declare this income and capital gain to HMRC must be corrected.
- Part (or all) of an estate which you inherited has an offshore bank account which was not declared to HMRC. A failure to declare this must be corrected.
- You have a UK trust with offshore assets that haven’t paid the relevant IHT charges, including the ten year anniversary charge. A failure to declare this must be corrected.
Why it was advisable to make a declaration before the deadline?
Not only have the penalty fines increased following the end of this disclosure period, in addition, 100 countries will be exchanging data on financial accounts under the Common Reporting Standards (CRS).
CRS data will significantly enhance HMRC’s ability to detect offshore non-compliance. This could means that you now face an increased risk of being targeted by HMRC investigations, becoming liable for the increased penalties as mentioned above.
What time period is covered?
HMRC is concerned with tax due up until 6 April 2017. Regarding how far back HMRC can go, there are varying time limits based on the type of tax involved (income, capital gain or inheritance tax) and the individuals motive (careless or deliberate avoidance) ranging up to 20 years from the end of the tax year in which the tax loss arises.
What should I do?
If you are unsure whether you have undeclared UK tax liabilities that involve offshore matters, you should check your affairs and contact our experienced team to discuss your options and how we can assist.
How can we help you?
The guidance from HMRC is complex and choosing advisors who can assist you can be an important first step to preparing to meet the disclosure requirements.
Our tax team has a good level of experience and understanding in this area and have been helping individuals to file the necessary corrections.
Please contact us if you have any questions or to discuss your specific exposure to these rules, and we can then provide a quotation for completing this for you.