Offshore assets and foreign income
No matter where your money and assets are, if you are UK resident and domiciled you must pay UK tax on all your income and gains worldwide. There may be some differences if you are not UK domiciled but the rules are complex and frequently change.
HMRC recognises that there is often a link between holding offshore assets and failing to declare UK tax. It therefore considers all those that hold assets abroad as ‘high risk’. HMRC is addressing this risk systematically and seeking to collect all tax arrears on offshore assets and foreign income.
Disclosing offshore assets and foreign income
If you have any overseas income or capital gains that were overlooked on your UK tax returns, you should proactively seek to disclose these to HMRC. If you wait until HMRC begins an investigation, the eventual settlement cost will be higher.
Common Reporting Standard
The OECD, working with the G20, developed a Common Reporting Standard (CRS) for the automatic global exchange of financial information. Since September 2018 over 100 countries (including former ‘tax havens’) exchange information annually.
The CRS ‘looks through’ any trusts, companies and foundations to identify the individuals who have an interest. The information will then be given to the country where those individuals are believed to be tax resident. HMRC obtains additional information from many countries using its network of Tax Information Exchange Agreements.
HMRC analyses the data it receives, comparing it to tax returns and other information it already holds, to identify taxpayers to investigate.
View our interactive map to get a wider picture of global adoption of the CRS.
Read our guide on the CRS.
Requirement to Correct
HMRC introduced the ‘Requirement to Correct’, which obliged taxpayers to disclose irregularities relating to offshore assets and foreign income before 30 September 2018. Failure to fully disclose will result in penalties of at least 100% of the tax in the absence of a ‘reasonable excuse’.
Asset based penalties and public naming may also occur if a person knew they should correct and failed to do so. This applied irrespective of ongoing enquiries and regardless of the reason for errors and omissions.
Consequently, disclosures are needed for failing to submit tax returns, making errors, failing to implement tax planning correctly and deliberate omissions. Protective disclosures may be needed where technical views were taken in the past with which HMRC may disagree. Disclosures can still be made now, after the deadline and should result in lower penalties than those which HMRC will impose if it starts an investigation first.
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