If you have clients with offshore assets, it is imperative that they check to ensure that their tax affairs are in order.
If they had previously sought professional tax advice, it is worth checking whether the advice still applies. Alternatively, if the circumstances or structure has changed, they should seek up to date professional advice to make sure everything is in order.
The reason for bringing this to your attention, is that from 1 October 2018, UK residents with undeclared offshore income and/or capital gains potentially face a minimum tax-geared penalty of 100% of the tax due. The starting position is a 200% penalty, which can be reduced to 100% in the best case scenario. This is called the Failure to Correct penalty legislation.
What has caused HMRC to strengthen their sanctions where there are undeclared offshore assets? HMRC state that the introduction of the Common Reporting Standard in January 2017 will result in over 100 jurisdictions exchanging information on offshore financial assets by or on 30 September 2018. This is an unprecedented step towards transparency across tax jurisdictions and will mean that HMRC will soon be able to match overseas financial assets to UK residents to see whether they are tax compliant. Where HMRC suspect that tax has not been paid, they will open tax enquiries and in the more serious cases, this could result in a criminal investigation.
HMRC decided in 2015 (following the political pressure caused by the Panama papers) that it was no longer necessary or appropriate to offer incentives to people to come forward and disclose their undeclared offshore assets. The existing facility to make a voluntary disclosure was closed on 31 December 2015 and HMRC announced in 2016 that UK advisers and financial intermediaries would be required to notify their clients and customers that due to the introduction of the Common Reporting Standard, a tougher approach was going to be taken to previously undisclosed offshore assets.
At present, someone disclosing undeclared offshore assets faces an average tax-geared penalty of approximately 30%, whereas this figure will increase to 150% after 30 September 2018.
While it is clear that the majority of people with overseas assets are tax compliant, HMRC are tasked with identifying and targeting the ‘hard-core’ minority that have historically hidden assets overseas to evade paying taxes. The significant increase in the penalty loading is targeted at these individuals.
The UK tax legislation is complex and constantly changing. It is inevitable that there will be some ‘collateral damage’ where a UK resident inadvertently relies on out of date professional advice. The consequences of which will no doubt be serious in some cases. To avoid exposure to the harsh new sanctions that will come into force, we believe the best approach is check now, rather than pay later.
Gabelle provide specialist consultancy services to both advisers and their clients with complex tax structures. We have a proven track record of resolving contentious disclosures to HMRC and are ideally place to provide independent and practical advice suited to your needs.
For further information on the new penalty regime, how to ensure that your clients’ tax affairs are in order or how to make a voluntary disclosure, please contact John Hood on 0845 4900 509.