The UK government has taken another significant step forward in its war against hidden offshore bank accounts, announcing plans to make it easier to prosecute offshore evaders, with a possible prison sentence for those found guilty.
The proposals could see criminal convictions handed down to people with undeclared offshore income, even if HM Revenue and Customs (HMRC) is unable to prove an intention to evade tax.
UK Chancellor George Osborne first mentioned the development while in Washington for the International Monetary Fund’s spring meetings. Speaking to the Financial Times on April 12, he said the government would change the balance of the law, so that the burden of proof falls on those hiding money offshore.
He said this new criminal offence sends a clear message to tax evaders that there is no hiding place and warned: “We will find you.”
This was confirmed two days later when the Treasury released its publication No Safe Havens 2014.
New strict liability
Currently, HMRC needs to prove that someone deliberately evaded tax to secure a conviction. Under the new proposals, it would only need to demonstrate that the income was taxable and undeclared. Those under investigation could face a strict new liability criminal offence – no intent to deceive need be proven.
It would only apply to income generated offshore.
This is a controversial proposal. It could potentially mean that someone could go to prison for tax evasion even if it was committed out of ignorance rather than a deliberate intent. A government spokesman has however said that judges could exercise discretion in cases of ignorance.
Currently penalties for offshore tax evasion can run up to 200% of the tax owed.
The government is now reviewing the existing penalties to ensure they act as a clear and effective deterrent. It will consult on whether the 200% limit should be raised further; how penalties could be increased if individuals are deemed to be attempting to move money around to avoid detection, and if the regime should be extended to include inheritance tax.
Besides the penalty, the back tax always needs to be paid, with interest.
The Treasury document states that they are ready and able to pay rewards for significant information which helps to uncover secret offshore bank accounts.
The government is opening a consultation to determine how strong the new penalties attached to the new law will be, and what rewards to offer whistleblowers.
No safe havens
On the release of the publication, Mr Osborne explained that the government has already taken significant steps to clamp down on those hiding their money offshore. HMRC has brought in over £1.5 billion in the last two years, and the government is working with the G8 to increase transparency and tax information sharing on a global basis.
“But there can be no let up and we will continue to pursue offshore tax evaders,” he said. “Those who continue to believe they can hide wealth offshore should know that there is no safe haven and that serious consequences await them.”
This comes at a time when it is getting easier for the government to find hidden offshore bank accounts, with the new global standard for automatic exchange of information due to come into effect soon.
The Treasury document warns that it will use vast amounts of offshore data to prevent people from evading offshore and tackle them when they do.
Over the last year the UK has signed 10 more automatic exchange of information agreements. It intends to adopt the Organisation for Economic Cooperation and Development’s (OECD) new global standard of automatic exchange of information as soon as possible. Forty four countries have joined the pilot scheme so far.
In three months’ time, offshore banks in the Isle of Man and Channel Islands will start to share much more client data with HMRC. Banks in a further 30 countries will follow suit.
Under these exchange of information agreements, tax investigators will be able to see names, addresses, account numbers, details of the account and balances of bank account holders.
With countries across Europe sharing both information and expertise, it is quite possible that other countries will adopt tough measures similar to the UK against offshore tax evasion.
It is of course perfectly legal to have offshore bank accounts, but as always you need to ensure you fully declare them according to the tax laws in your country of residence. While offshore bank accounts serve a useful purpose, depending on the amount and your objectives, they may not be the most tax efficient home for your capital – particularly here in Portugal, where the tax rate on interest from the Isle of Man and Channel Islands is 35%. There are legitimate tax planning opportunities here in Portugal, but you need to make sure you are up to date and get it right. Seek specialist advice.
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