In a year’s time, the Portuguese tax authority will have started receiving information on its taxpayers’ offshore assets and income, under the new global automatic exchange of information regime. The UK is already being handed details of hundreds of thousands of offshore accounts held in its Crown Dependencies and Overseas Territories.
Common Reporting Standard
Over a hundred countries have committed to the automatic exchange of information for tax matters. Fifty-four jurisdictions began collecting information on financial assets in January 2016, ready to pass the information onto the owner’s tax authority in September 2017. A further 47 countries start a year later.
This new information gathering and reporting requirement for financial institutions is known as the Common Reporting Standard. Created to prevent offshore tax evasion, it will provide tax administrations with timely information on non-compliance where tax has been evaded, particularly where they have had no previous indications of non-compliance.
UK dependencies and territories
The Common Reporting Standard was published in July 2014. Prior to that, the UK government had reached automatic exchange of information agreements with its Crown Dependencies (Jersey, Guernsey, Isle of Man) and Overseas Territories (including Gibraltar, Cayman Islands, British Virgin Islands and Bermuda). In this case, information relating to calendar years 2014 and 2015 had to be provided to HM Revenue & Customs by September 30, 2016.
The information being reported for 2014 are name, address and tax identification number of account holder, the account number, name of reporting financial institution, and the account balance or value at end of the year (or immediately before closure). For calendar year 2015, this is extended to include total gross interest for depository accounts and gross interest, dividends or other income generated by assets within a custodial account.
The data provided includes bank accounts, investment management accounts, private equity funds, hedge funds, certain insurance policies and offshore trusts.
Tax investigators will use software to sort through the data received from multiple databases, and the revenue expects to receive up to £300 million from the new information it will receive from these territories.
The Crown Dependencies and Overseas Territories have also signed up to the Common Reporting Standard and so will be sharing information with Portugal from next year.
HMRC warning letter
The UK tax authority is sending a warning notice to UK residents who have received financial advice or services about overseas income or assets.
The letter, which has the header “If you have money or other assets abroad you could owe tax in the UK”, warns taxpayers that HMRC will find out their money and assets overseas, as from 2016 it is getting new financial information from more than 100 jurisdictions. This includes details about overseas accounts, structures, trusts and investments.
It asks the reader if they are confident their UK tax affairs are up-to-date, pointing out that personal circumstances can change – for example, they may have recently inherited overseas assets. Tax laws also change and previous planning could be out-of-date.
Penalties for those who are not paying the correct tax on offshore assets are increasing, and criminal prosecution is a possibility. Under new rules, tax evaders could face new further penalties based on the value of the asset as well as the tax due, “resulting in potentially life-changing circumstances”.
New disclosure facility
HMRC launched its Worldwide Disclosure Facility on September 5, 2016, giving uncompliant taxpayers one last opportunity to regularise their affairs.
Unlike previous facilities, it does not offer any special terms. Taxpayers have to pay the tax due, interest, and a minimal penalty of 30%. They could still face criminal prosecution.
HMRC advises that, when calculating penalties, it will consider the quality of the information disclosed as well as how long it took the individual to put their tax affairs in order.
Once it closes in September 2018 tougher sanctions will be introduced. Plans are for taxpayers to then pay up to three times the tax evaded.
The UK government is also introducing a “Requirement to Correct” obligation to compel errant taxpayers to put their offshore affairs in order ahead of the widespread adoption of the Common Reporting Standard. Failure to do so could make individuals liable to a new set of legal sanctions for “failing to correct”.
Jennie Granger, HMRC’s Director General of Enforcement and Compliance, said: “Our message couldn’t be clearer: there are no safe havens left for UK tax evaders and no-one should be in any doubt that the days of hiding money offshore with impunity are gone.”
Cross-border tax mitigation can be a minefield for expatriates, and specialist wealth management guidance is necessary these days to have peace of mind – both that you are not paying more tax than necessary and that your arrangements are fully compliant in Portugal and the UK.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com