Undisclosed Offshore Accounts

Investors with undisclosed offshore will face new penalties for 2011/12 in respect of undisclosed offshore income and gains. Penalties will now be based upon tax lost as a result of inaccuracy in a return, the behaviourof the taxpayer, the degree to which the taxpayer has disclosed to HMRC and under the new rules, the location of the undisclosed income or capital gains.

A penalty for an inaccuracy linked to UK income and gains will face a maximum penalty of 100% of tax lost. All other territories outside the UK hace been categorised as follows:

Category 1 - territories with agreements to automatically share information about taxpayers with the UK authorities; the penalty will be up to 100%.

Category 3 - territories that have no agreement to share information with the UK authorities or any agreement already in existance falls short of the international standards; penalties here will be up to 200% of tax lost.

Category 2 - includes all territories not listed in categories 1 or 3 and the maximum penalty will be 150% of tax lost.

Territories can move between categories as the exchange of information agreement with the UK develops.

This increased penalty should be borne in mind by all individuals and companies when making disclosure to HMRC. It can not be negotiated away, merely mitigated on the same basis as penalties applying to UK liabilities-by way of full and voluntary disclosure and cooperation with HMRC as laid down in the new penalties legislation at schedule 24 FA2007.

Offshore bank account information held by HMRC and ever increasing levels of cooperation between various territories and the UK means the discovery of undeclared funds overseas is increasingly likely. Business transactions involving overseas activities may, if an error is made, fall into the legislation.

Clearly, some investors will need professional advice particularly in relation to disclosing the information to HMRC. As the saying goes, ‘ it ain’t what you do – it’s the way that you do it.’  So what should investors do in this situation? In some ways the answer is easy, make the declaration to HMRC by 22nd June 2007 but before doing so seek professional advice. It could well be that an investors affairs are quite straight forward but equally what appears to be so is not actually the case. It is possible that some investors can speak to their own accountant (if they have one) but because of the complications of liaising with HMRC on this particular issue, it may be preferable to appoint specialists who have the experience on these matters. Especially if the investors’ status is somewhat complex. Bowyer Styles can be of assistance in referring to tax specialists.

So what for the future? Obviously if investors decide to retain their offshore cash deposit accounts with the Banks indefinitely, then interest will have to be continually declared. As such some investors will feel that this strategy is not tax efficient and see little point in keeping them. They may even decide to close them and return the money to Bank/Building Society accounts in the United Kingdom. The next question must be, is there a better way? Not surprisingly the answer is Yes.

Since 1988 we have been advising clients on the subject of investment and associated tax planning. Part of a client’s portfolio could be to invest offshore but in strategies that are more tax efficient than investing directly in cash deposits of Banks. As an example, if a client wants to invest wholly on cash deposits- we can access offshore cash funds where the gross rates are currently in the region of 5% to 6% per annum. Some of these accounts are ‘AAA’ rated unlike ‘UK’ Banks which may be only ‘A’ rated. Whilst offshore these cash funds grow tax-free and based on current legislation are not part of the ‘tax amnesty’ procedures previously referred to. For further information on this tax efficient investment opportunity, please visit the page on our website headed ‘International Investment.’

As HMRC regularly state in the media – ‘ tax does not have to be taxing.’

We know -  we already do it for our own clients.

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