53 more countries start automatic exchange of information in September. UK taxpayers also need to be aware of the Requirement to Correct.
From September 2018 the number of countries exchanging information under the Common Reporting Standard increases to over 100. Those in the UK tax net also need to be aware of the Requirement to Correct requirement. It is important to ensure you have correctly declared your offshore income.
In September 2017 tax authorities across the world, including Spain, France, Portugal, Cyprus, Malta and the UK, began sharing and receiving new information on their taxpayers’ offshore assets and income.
This is carried out under the Common Reporting Standard (CRS) for automatic exchange of financial account information. More than 100 countries have so far committed to obtain information from their financial institutions and pass it on to the clients’ country of residence.
49 jurisdictions began collecting data from 2016, making the first exchange in September 2017. Another 53, including Switzerland, Hong Kong, Singapore, United Arab Emirates, Australia, Canada, Panama and many Caribbean jurisdictions, began collecting data last year, ready to share it by the end of this September.
This automatic information exchange will be repeated every year going forward.
Albania, Maldives, Nigeria and Peru are undertaking first exchanges by 2019/20, and another 43 developing countries are in the pipeline.
Information being exchanged
The information being shared about the financial assets you own outside your country of residence includes your name and address, country of tax residence and tax identification number.
The information to be reported about your accounts includes the investment income you earned over the year (interest, dividends, income from certain insurance contracts, annuities etc.), account balances and gross proceeds from the sale of financial assets.
Reporting financial institutions include banks, custodians, certain investment entities, certain insurance companies, trusts and foundations.
When local tax offices receive this information, they can verify whether the taxpayer has accurately reported their worldwide income and assets on their income and wealth (where applicable) tax returns. In Spain, the authorities can also compare data with the Modelo 720 declarations, where Spanish residents have to declare their non-Spanish assets in certain categories.
The UK’s Requirement to Correct – higher penalties from October
Last year HM Revenue & Customs introduced a statutory requirement requiring UK taxpayers to disclose any undeclared offshore tax liabilities. Under the “Requirement to Correct” (RTC), the deadline for those affected to get their affairs in order is 30th September 2018. From 1st October, the penalties for undeclared offshore income and gains will shoot up to 200%.
This will coincide with the time HMRC will receive its next wave of information from abroad. Once the deadline has passed, tax investigators will use the information received to find those who still have undeclared offshore income.
Key points of the Requirement to Correct
It affects people with outstanding UK tax liabilities on their offshore interests, whether bank accounts, investments, property etc. This concerns everyone who falls within the UK tax net and therefore may affect some expatriates.
It relates to income tax, capital gains tax and inheritance tax, and only non-compliance committed before 6th April 2017 falls within the RTC.
Failure to correct by 30th September will result in much tougher penalties under a new regime:
- Penalties of 200% of the tax owed. This may be reduced with full co-operation by the taxpayer, but the lowest is 100%.
- An ‘asset moved penalty’ of 50% of the standard penalty if HMRC can show that the taxpayer moved assets to avoid the RTC.
- An ‘asset based penalty’ of up to 10% of the value of the relevant asset where the tax at stake exceeds £25,000.
This applies to both those who made deliberate omission and those made innocent mistakes (unless they can show the mistake was not their fault).
Note that paying tax in the county where the income is generated (for example, if you paid local tax on rental income from an overseas property) does not automatically excuse you from paying tax in Britain if you are a UK tax resident. You have to follow the double tax treaty correctly.
An article in the Sunday Times on 24th June 2018 reported that “the taxman has his sights on holiday-home owners and people with bank accounts abroad, ahead of crippling new penalties for avoiding tax that come into force at the end of the summer.” The newspaper has seen warning letters HMRC sent to taxpayers it believes have not correctly declared offshore income. The letters remind the recipients of the new penalties and suggest they carry out a “tax health check”.
Anyone who lives in one country and has assets or earns income in another needs to take care with their tax planning and ensure they are declaring income as required by both country’s laws and paying tax correctly. This can vary from country to country, depending on the particular double tax treaty.
Getting it wrong can have serious consequences, and prove very costly and time consuming, so take international tax advice from a cross-border tax and wealth management specialist. They can also guide you on the compliant tax-efficient arrangements available in your country of residence and the UK to help you improve your tax liabilities, particularly on your investments and for your heirs in future.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.