|
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
There’s nowhere left to hide. HM Revenue & Customs (HMRC) have been secretly investigating UK property investors for some time now and are ready to pounce on the thousands of offshore account holders who haven’t fully declared their income from foreign property.
If you think this might affect you, act now before you get a knock at your door. Now is a particularly good time to ‘speak up’ as there’s talk of a temporary partial amnesty for those who have undeclared money in offshore accounts, but this offer won’t last for long…
Many banks and financial institutions have now been contacted and asked to provide private customer details so HMRC can tap into the estimated £2bn worth of unpaid tax being held in offshore accounts. HMRC Director General, Dave Harnett has backed this up by claiming “we have had a meeting with 150 of these (banks) and will be serving information notices to bring info into our net.”
64,000 taxpayers took advantage of last year’s successful crackdown and partial amnesty, which also netted HMRC £120m. 20,000 people fully paid their outstanding property and capital gains tax, plus a 10% fine, but others missed the November deadline and are now paying the price.
The process is expected to be repeated this year, but with a few hidden surprises thrown in. There were concerns over confidentiality last year and while some financial institutions objected loudly, others simply refused to disclose the information to the Revenue.
However, this time things are likely to be very different. Recent changes to legislation mean banks have little choice but to hand the requested information over and taxpayers will be offered a 'disclosure arrangement' along the lines of what was offered to 100,000 people last June.
If you haven’t fully declared your income and capital gains it’s likely you will be given a deadline to pay your tax plus a 10% capped fine.
This year’s campaign will be much more widespread than last year when just seven UK banks were targeted. An amnesty was offered in Ireland last year, which guaranteed immunity from prosecution and consequently brought in hundreds of millions from a relatively small economy. However, this year the HMRC may reserve the right to prosecute, even when the amnesty and payment deadline has been met. This could indirectly affect how people view the offer, deterring some from coming clean about the funds in their offshore accounts.
Most people are expecting the easiest group to be targeted first, meaning those who normally submit self-assessment tax returns. However, there are now new resources at hand, in the form of equipment and software that can trace funds in many different ways, so it’s highly unlikely that you’ll be able to avoid the tax inspector's clutches. The only difficulty HMRC might have is that they probably don't have the manpower to process all the information that’s mounting up, so it’s likely that they’ll go for the softest targets first.
Worryingly, HMRC are also adopting underhand tactics in their pursuit of taxpayers' money, and they have police backing. New powers have allegedly been granted under the Serious Crime Act, making it legal to bug people's homes in an attempt to spot tax cheats. This kind of action was previously only available to Customs officials when investigating drug and gun crime, but can now be utilised by Revenue and Customs as well as several other official agencies.
HMRC have officially stated that these powers are only to be used in extreme cases, but the ability to use every tool at their disposal could prove too tempting.
So far, there haven’t been many complaints from the 170 or so banks involved about providing private customer information, but perhaps unsurprisingly there have been objections about the cost and security issues involved. Many believe it’s an inevitable measure and are compliant in supplying the data.
It’s been reported that banks are even being asked to supply details on customer accounts where there are no obvious offshore funds held with the bank. Despite HMRC being blamed for the loss of precious data when 2 disks were lost in the post last year, this probably won't stop the transfer of information or the amnesty from happening. Banks need to be extremely careful not to upset HMRC, as the ramifications are potentially huge.
In any case, they could be ordered to submit the data by a court or special commissioner under the Taxes Management Act 1970, which permits the taxman to request a special commissioner force someone to hand over data relating to unnamed taxpayers.
It’s pretty much recognised among the banks that they’ve been beaten, so even if they drag their heels for while, ultimately they will have to comply with HMRC's request over the next few weeks.
Property tax is extremely complex, so it’s highly likely that while people may not be purposely avoiding their tax payments, some might misjudge or inadvertently fail to declare them in full.
How The Process Works
Firstly you must complete the additional foreign pages of your annual ‘self assessment’ tax return. The level of tax liability is then calculated from your resident status - a ‘resident’ being someone who either lives in the UK for a minimum of 183 days out of any particular tax year, has permanently set up home in the UK, intends to stay for three years or more, or is living in the UK for an average of 91 days or more in any tax year.
On top of this you may also be sub-classed as 'ordinarily resident' or 'domiciled'. However, even without additional classification you are liable to declare all income or capital gains that you make from overseas property, even if that income hasn’t been brought into the UK. It’s also worth noting that you could have to declare other property transactions (such as the sale or letting of property), even if you didn’t profit from them financially.
The main point is that, considering the extent to which HMRC are now examining bank accounts and other legal and financial records, it really isn’t worth taking any risks when declaring assets or funds that you hold in the UK or abroad.
Don’t Delay…
Simply inform your accountant or financial advisor of your current property investment dealings, then have them contact HMRC about negotiating a settlement of any outstanding liabilities. Don’t put this off, because you will get found out and if you leave it too long to get things sorted it could cost you dearly.
If you're interested in tax issues we recommend you visit TaxCafe, this is where we get our tax related information from. |
