Starting in January 2016, more than 90 jurisdictions will begin to collect the financial details of investments and assets owned by non-residents. The data will then be shared with the owner’s country of residence. This new automatic global exchange of information, under the Common Reporting Standard (CRS), will provide information that the tax authorities in participating countries, including Portugal and the UK, can use to catch tax evaders.
In the UK, the Chancellor announced in his Autumn Statement that HM Revenue & Customs (HMRC) will receive £800m to fund additional work to tackle evasion and non-compliance by 2020-21. Two days later, David Gauke, Financial Secretary to the Treasury, launched a press campaign advising those hiding assets offshore to “come to us before we come to you”.
He warned: “With over 90 jurisdictions now agreeing to automatic exchanges of information, the net is closing in on offshore tax evaders.”
From 2016, those who evade tax in the UK face tougher financial and criminal sanctions as part of a drive to claw back an estimated offshore “tax gap” of £565m. The UK government has committed to raising an additional £5bn a year by 2019-20 from cracking down on tax evasion, non-compliance, aggressive tax planning and imbalances in the system.
This affects everyone who has financial assets outside their country of residence, such as bank accounts and investments, property, trusts etc, including those who have received an offshore account as an inheritance.
Harsher UK penalties
The 2015 UK Finance Act introduced a penalty of 100% of the tax due for non-compliance involving a jurisdiction that has signed up to the CRS; this is expected to apply from April 2016. For non-transparent jurisdictions the penalty remains 200%. There is also an aggravated penalty – “Offshore Assets Moves Penalty” – for moving hidden funds to circumvent exchange of information.
The government had previously announced plans to introduce a new “strict liability” criminal offence for offshore tax evasion where it would not need to prove that the taxpayer intended to evade tax, simply that they had undeclared offshore assets. This was confirmed in the Autumn Statement. There will also be tougher civil penalties for offshore tax evasion.
End of Liechtenstein Disclosure Facility
Since the Liechtenstein Disclosure Facility opened in 2009, HMRC has collected £1.6bn from Britons voluntarily coming forward to settle unpaid offshore tax bills.
The Facility allowed UK residents to disclose unpaid tax liabilities under favourable conditions, such as reduced penalties and immunity from prosecution for tax-related offences. It is closing at the end of 2015, earlier than previously planned, ahead of the start of the Common Reporting Standard.
To help process the vast amounts of information that will be exchanged between countries under the CRS, the UK government has invested £4m in new technology. Part of the money has gone towards HMRC’s Connect programme that captures and connects billions of items of data around taxpayers. It allows the taxman to uncover hidden relationships between people, organisations and data.
Connect collects information from public sector records – such as the Land Registry or DVLA – as well as private businesses and trade associations. Compliance officers can compare this with a tax return and decide whether to open an enquiry.
Connect also allows HMRC access to files held by banks and other financial institutions in British overseas territories, such as the Channel Islands, exposing undeclared income and gains arising from overseas assets and investments. From 2017, it gains access to data in a further 90 countries.
HMRC has also reportedly increased the number of staff working in its Affluent Unit by 54% in the past two years. The unit was set up in 2011 to investigate taxpayers with an income of more than £150,000 and is alerted by a number of factors, including the possession of offshore property and/or bank accounts.
Cross-border asset management and tax planning is complex, and you often need to take the tax laws of more than one country into account. It can be a minefield and easy to get wrong. You could be failing in your tax obligations, or paying more tax than necessary. Everyone needs to ensure their tax planning is legal and compliant. Note that although the first reporting under the Common Reporting Standard takes place in 2017, it reports on calendar year 2016, so there is only a short amount of time before this new regime starts.
There are effective, compliant arrangements available in both Portugal and the UK, but you should take personalised specialist advice to ensure you get it right.
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