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UK taxpayers with offshore interests, such as holiday homes, have until 30 September to make sure they are meeting their British tax obligations or risk costly penalties under new rules. 

Under the ’Requirement to Correct’ regime, those who have undeclared UK tax liabilities involving overseas assets face penalties of up to three times the tax that should have been paid. 

Who is affected?

This potentially affects UK taxpayers who own overseas financial assets and/or receive income outside the UK – including bank accounts, rental income, investments, trusts and property. It can also apply to British expatriates who have offshore interests that give rise to a UK tax liability.   

UK nationals with cross-border interests should therefore undertake a tax planning ‘health check’ to ensure their tax affairs are in order, even if they are non-UK domiciled. 

What are the rules?

The penalties apply where there is unpaid UK income tax, capital gains tax or inheritance tax on offshore income, assets or activities existing at 5 April 2017. This could be the result of inaccurate declarations to HM Revenue & Customs (HMRC) or not filing a tax return at all – whether done deliberately, through carelessness or inappropriate advice.

If irregularities are not declared by 30 September 2018, penalties become more severe. In addition to the tax due, a standard penalty of up to 200% of the tax owed will apply. Where underpaid UK tax exceeds £25,000, there will be an additional ‘asset-based’ penalty of up to 10% of the value of the related assets, together with potential ‘naming and shaming’. 

If HMRC determines that assets or funds were moved to another country to avoid liability, another 50% of the standard penalty charged applies, generating a potential total bill 300% higher than the original tax owed. Serious cases could even lead to criminal sanctions.

While HMRC will consider “reasonable excuses” for non-compliance – such as where you have acted on professional advice that unknowingly results in unpaid UK taxes – this is not straightforward. 

What do you need to do?

Even if you believe your affairs are in order, you may owe taxes without realising it. If you have overseas interests, you should urgently review your historic and current tax position to check you are meeting your obligations.

If you notify HMRC of non-compliance before 30 September, you will have 90 days to submit the full disclosure and payment. In this case, just the tax owed and interest will be collected with the existing penalties applied, often as low as 10%. 

If you believe you have no undeclared UK liabilities but you are still unsure if you need to make a correction, you could consider making a ‘nil tax’ voluntary disclosure to HMRC about your offshore interests before 30 September.

Future penalties

While Requirement to Correct targets offshore tax evasion up to April 2017, the UK government has introduced new punishments for subsequent non-compliance. Three new UK criminal offences relating to offshore income, assets or activities from the 2017/18 tax year onwards are:

  1. Failing to notify HMRC of chargeability to income or capital gains tax in time
  2. Failing to file a tax return in the required timeframe 
  3. Filing an inaccurate return


Where tax exceeds £25,000 in any tax year, penalties can be an unlimited fine (maximum of £5,000 in Scotland and Ireland) and up to six months in prison. 

Global tax transparency 

HMRC’s timing here coincides with the date it starts to receive full data under the global ‘automatic exchange of information’ regime. This September, a further 50 countries join the likes of the UK, Portugal, Spain, France, Cyprus and Malta to start sharing information on taxpayers’ financial assets and income under the ‘Common Reporting Standard’. With the total network now at over 100 jurisdictions and growing each year, it will be much easier for tax offices to check if offshore declarations are accurate. 

Under this global scrutiny, it is more important than ever to take care with your tax and financial planning. Remember, ignorance is no defence; it is your responsibility to check you have declared all your worldwide tax liabilities and bring your tax situation up to date if necessary. 

Cross-border taxation is highly complex; as well as changes to UK tax legislation, you need to understand the rules wherever you have financial interests – and how they interact with UK rules – to make sure you are getting it right. Taking personalised, professional advice from an adviser with cross-border expertise can help you enjoy favourable tax treatment while offering peace of mind that you are meeting your tax obligations, here and in the UK.

Contact us for a financial healthcheck

 

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; individuals should seek personalised advice.