If you have any overseas investments, please read this blog. You’ll likely have until September 2018 to declare any undeclared offshore interests to HMRC or face the music. Here’s what you need to know.
RTC (Requirement To Correct) was a measure which was dropped earlier this year when the snap election was announced, but has since been reinstated into the Financial Bill. It’s fully expected to be passed into law triggering the compliance date of the 30th September 2018 giving you less than a year to check that you’re compliant; and if you’re not, to pay up.
It coincides with the release to HMRC of a massive amount of tax data totalling some 13.4 million documents.
What Counts As An Overseas Investment?
There are three categories to consider here in regards to Income Tax, Capital Gains Tax and Inheritance Tax.
Offshore Matters – an inaccuracy, failure to notify or deliberate withholding of information that leads to a loss of revenue that is charged on or relates to:
- income arising from a source / territory outside the UK,
- assets situated or held in a territory outside the UK,
- activities carried on wholly or mainly in a territory outside the UK.
Offshore Transfers – when:
- taxable income is received in a territory outside the UK or is transferred to a territory outside the UK before the statutory filing date,
- disposal proceeds giving rise to a charge to Capital Gains Tax are received or transferred outside the UK before the statutory filing date,
- assets that give rise to a charge to Inheritance Tax are transferred outside the UK before the statutory filing date.
As a side note, if you have paid a one-off charge under the UK-Swiss agreement, this payment does not necessarily mean you are fully compliant with the new laws, always check.
When the topic of tax evasion is raised, we’re all guilty of thinking that it’s an issue for very wealthy, unscrupulous individuals, scheming in their towers and swimming in a vault of coins like Scrooge McDuck. But the RTC is also aimed at individuals who may think that their overseas assets are in perfect order, but who have perhaps not reviewed their tax planning, meaning out-dated structures remain in place, or even individuals who have forgotten they hold a bank account overseas.
Why Has The RTC Been Introduced?
Simply put, this measure has been introduced because some people do abuse the tax system and have been evading tax for a significant amount of time.
HMRC has been criticised in the past for being too soft on overseas tax evasion, imposing too modest penalties and only taking action against those who voluntarily declare their tax evasion. This refreshed approach sees a complete turnaround from the more ‘carrot’ approach of the past to the ‘stick’ approach of the future.
When this new law passes the clock will be ticking towards the date when HMRC will be able to access a massive amount of data under the CRS (Common Reporting Standards) act. The CRS data becomes available on the RTC deadline and HMRC will have a wealth of data at their disposal to sift through and find all those who have not declared overseas investments.
The new worldwide data available under CRS will add to the current UK FATCA (UK Foreign Account Tax Compliance Act) which exposes tax evasion within UK crown dependencies and territories such as Gibraltar and Jersey.
And as HMRC’s enforcement and compliance department comprises 46% of their workforce, they’ve made their intentions clear, so don’t get caught out.
In the past, accountants, legal and financial advisors who are less scrupulous may have suggested ‘legal’ ways to reduce tax exposure. As always, go by the rule ‘if it sounds too good to be true, it usually is’, and take the necessary steps to ensure you’re compliant.
What Are The Penalties?
Of course, you’ll be expected to pay the tax owed plus any penalty applied.
The appropriately named, FTP penalties (Failing To Correct), are harsh. And they’re set to be applied after the deadline in September 2018, however if you voluntarily declare now and pay up what you owe before then your penalties will be minimised.
Tax due to be corrected will vary by motive: for non-careless behaviour the previous four years will be considered, for careless behaviour it will be 6 years and for deliberate tax evasion the previous 20 years will be considered in regards of tax due and penalty applied.
After the deadline you’ll be expected to pay any tax owed plus a penalty of up to 200% of tax due*. HMRC have released a detailed document to show the penalty range for various levels of non-disclosure.
*In addition, taxpayers could also be charged a further 10% penalty of the value of the overseas investment and HMRC will have the power to ‘name and shame’ non-compliant taxpayers under certain circumstances. And as the Paradise Papers have recently demonstrated, even alleged tax evasion news is big news.
What If You Own Property Abroad?
If you have a second home(s) outside the UK with an associate bank account(s) you will not need to take any action, so long as you’re not profiting from the property. If your property is a rental property and you are unsure if you’re 100% compliant, you should have a professional assess your situation to be sure.
If you decide to sell the overseas property in the future, remember, you will be required to declare this and pay UK Capital Gains tax and possibly tax in the country the property is situated in.
How Do You Declare Overseas Investments?
If you have anything to declare, now is your opportunity to declare; and not to worry, there’s another three character acronym for that too. The WDF (Worldwide Disclosure Facility) is already up and running, ready to register your voluntary disclosure.
Worried You Might Be Fined?
If you are unsure about any of your investments, call our team and speak to one of our fully qualified chartered accountants. If you do have overseas investments of any kind, even if you think you’re compliant, you should check.
Click here to: Book A Tax Check
Co-chair of the Association of Taxation Technicians, Yvette Nunn has said, “The RTC represents a change in approach (for HMRC), threatening taxpayers with a stick of large penalties”, as opposed to the previous ‘carrot’ approach of rewarding those who come forward with lesser penalties.
“We would encourage all taxpayers with offshore interests to review their affairs as soon as possible with a view to either satisfying themselves that they UK tax position is up to date or making any necessary disclosure to HMRC”.