Do you hold offshore assets? Take care not to trip up!

Do you hold offshore assets? Take care not to trip up!

Individuals and trustees who hold offshore assets normally report the correct amounts and pay the right amount of UK tax, but with complex tax rules unintentional errors can easily happen.

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offshore assets

HM Revenue and Customs (HMRC) has raised the stakes on compliance errors relating to offshore assets and income. Those who, for whatever reason, have not got their reporting and tax on offshore assets right, and who do not take corrective action in time, face unprecedented levels of penalties. 

These new penalties start at 200% of the tax liability (this can be reduced but to no lower than 100%) and include (for the most serious cases) an additional penalty of up to 10% of the value of the relevant asset. They also include the reputational damage of being ‘named and shamed’ on a public website.

Individuals, families and trustees holding any offshore assets need to think carefully and double check that they have no issues to address.

Legal obligation to correct

Legislation will be enacted this year introducing a new legal obligation to correct any issue in relation to ‘offshore matters’ that have given rise to a UK tax liability. This requirement is described as a ‘Requirement to Correct’ (RTC).

This obligation impacts individuals and trustees with offshore interests (very wide definition of offshore) who have a UK tax liability relating to Income Tax, Capital Gains Tax or Inheritance Tax.

RTC requires any tax issue mainly or wholly relating to offshore matters for all periods up to 5 April 2017 to be corrected by 30 September 2018. This date is consistent with the date information will be exchanged with HMRC from circa 100 countries under the Common Reporting Standard (CRS). The relevant years to be corrected (and any penalties) depend on taxpayer behaviour.

RTC is wider than evasion

There are many common technical issues where we have seen inadvertent errors that would be impacted by RTC. Examples include:

  • Remittances of overseas income and gains;
  • UK source income in offshore accounts;
  • Purchase of UK assets using foreign income or gains;
  • Benefits from offshore trusts; and
  • 10 year IHT anniversary charges.

HMRC approach

HMRC has made it clear that it will use data received under information sharing agreements such as CRS or data from other sources (e.g. Panama papers) to risk assess and as necessary undertake investigations. Therefore it’s sensible to ensure that everything is compliant prior to any approach from HMRC.

Swiss assets

Many Swiss assets will have had the one-off charge under the UK Swiss Tax Agreement (Rubik Agreement) applied for the past. However, although the amount actually subject to this charge will be ‘cleared’ we have seen many cases where, due to the account transactions (e.g. withdrawals from the account), amounts are still exposed to UK tax. Also, under the Rubik Agreement ‘non-doms’ could opt out of the one off charge, with most discretionary structures excluded, so it is important anyone in these categories is confident they are tax compliant.

What should I do next - and before 30 September 2018?

  • Anyone who is not certain their offshore affairs are compliant should review their position and make any correction or disclosure as appropriate.
  • Those who know they have undisclosed assets or income should take advice and make a disclosure to HMRC.
  • Those who were the subject of the one off charge under the UK Swiss Agreement need to be sure their assets and income are ‘cleared’ and no tax liabilities remain.

For further information on making a disclosure or if your affairs are under enquiry by the authorities see kpmg.com/uk/personaltaxinvestigations.

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