It has been well publicised by ourselves, the press and Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.... More that the ‘requirement to correct tax due on offshore assets’ (“RTC”) needs to be considered and appropriate action taken as necessary before 30 September 2018.
HMRC’s guidance provides the following detail on when they suggest non-complicance will occur and RTC aaplies:
“Offshore non-compliance occurs when there is tax owed to HMRC as a result of tax non-compliance and that non-compliance involves either an offshore matter or an offshore transfer.
The tax non-compliance involves an offshore matter if the unpaid tax is charged on or by reference to:
• income arising from a source in a territory outside the UK
• assets situated in a territory outside the UK
• activities carried on wholly or mainly in a territory outside the UK or
• anything having effect as if it were income, assets or activities of a kind described above”
Many taxpayers are confused and concerned by HMRC’s guidance and what they have read in the press so the purpose of this article is to focus on the examples of non-compliance provided in HMRC’s RTC guidance.
These are summarised here:
Example 1 – UK business income, banked in an offshore account
In this example Alan is self-employed, he has cash receipts which are not declared in the UK and are instead paid into an overseas bank account. The overseas bank account also received bank interest which is not declared.
In this example it is pretty clear cut, both the failure to declare his cash receipts and the bank interest must be corrected under the RTC rule.
Example 2 –Overseas property income and gain from sale of overseas property
In this example Emma rents out her holiday home in Spain, but the income is never declared to HMRC, she later sells the overseas property and the capital gain is not declared either.
Again this is quite straight forward, both the failure to declare her rental income and the gain from the sale of the property are offshore matters and must be corrected under the RTC rule.
Example 3 – Offshore non-compliance: Inheritance tax and failure to declare assets held outside of the UK
In this example the executor of an estate fails to disclose a large amount of cash held in an overseas bank account.
The failure to declare the property as part of deceased’s estate must be corrected under the RTC.
Example 4 – Non-resident landlord
In this example a non-resident landlord has failed to account for the additional tax due on UK rental income received and has not completed tax returns issued by HMRC. The rents received have been transferred overseas.
The failure to submit the returns must be corrected under the RTC because the rents received have been transferred overseas. HMRC use a non-resident company in their example, but the same rules applies here for individuals.
If you circumstances are similar to any of the above then you must take action now and should get in touch to discuss how we can assist you. The examples provided by HMRC are not exhaustive however, so if you have any offshore income/gains or have made transfers offshore which should have been declared then the RTC may still apply and you should take further advice.