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I'm 'offshore': How can I have a UK tax problem?

If you are an individual, trustee or director/shareholder of a non-UK company (or equivalent entities, e.g. foundations/anstalts) and have consistently resided outside of the UK you may still have a UK tax problem that needs an urgent review.

Requirement to Correct

The UK introduced legislation in late 2017 called ‘Requirement to Correct’ (RTC). In summary, if you do not correct an historic UK tax error before 30 September 2018, and the UK tax authorities (HMRC) later discover the mistake (e.g. through information received under the Common Reporting Standards sharing regime); there will be crippling penalties (200% of the tax plus 10% of the value of any related assets) and HMRC may publish your details on their website, which is watched by the media.

How can this affect me if I’m ‘offshore’?

The UK’s tax system has far-reaching tentacles so if you (in whatever capacity you are acting) have any connection to the UK, you should check the position carefully, and soon, just to make sure that nothing has been missed. If it turns out that there has been a mistake, it is possible to limit your exposure to just the tax missed plus any interest (i.e. no penalties).

The types of things to look out for are as follows:

Individuals

  • Have you ever received income from UK real estate?
  • Have you ever spent time working in the UK?
  • Have you ever been UK resident and received anything from a non–UK trust that you did not set up?
  • Have you ever been UK resident and not claimed the remittance basis for your overseas income/gains?
  • Have you ever been UK resident while being a beneficiary of a trust you created (especially if the structure received UK income at any level)?
  • On death, did the deceased own or gift any UK assets, including loans to a UK resident individual?

Trustees (or equivalent)

  • Have you ever received income from UK real estate?
  • Have you ever received income from other UK assets (including ADRs or equivalent over UK investments) while a beneficiary has been UK resident?
  • Have you ever held UK assets, including ADRs and loans to UK residents? If so, did you know the UK levies what is effectively a 6% ‘wealth tax’ every 10 years on such property?

Companies

  • Have you ever received income from UK real estate?
  • Has the company owned or sold UK residential property since April 2013?
  • Has the management and control of the company always been outside the UK?
  • Has the company ever carried on a trade in the UK via a Permanent Establishment?

How can I protect myself? 

If you are entirely confident that you have complied with all your UK tax-reporting obligations, you do not need to worry (perhaps make a note on your files that you considered RTC but felt there was no need to act further).

However, if you are at all uncertain, then you should seek advice from someone who can review your position and let you know where you stand.

One of the most unusual aspects to the RTC legislation is that you are generally not able to rely on the fact you took tax advice in the first place. While this may seem nonsensical, it can be solved by receiving a second opinion now, which you are allowed to rely on if HMRC successfully challenge your historic actions.

For those who actively flaunt the rules, when eventually caught, no one will be able to defend or protect them from very harsh penalties, including prison. However, although the vast majority of people we know try to get things right, sometimes there are mistakes. 

Time is not on our side – September 2018.

Other changes to be aware of

Since 6 April 2017, the UK’s Inheritance Tax regime is much wider than before so be very careful where you (any of the three above) hold an interest in UK residential property, either directly or indirectly. This includes a loan to anyone who spends the money on UK residential property in any way as well as any collateral that you provide to facilitate any such loans. We have recently seen an example where the overall charge can be 120% of the property value. 

If you do not have a UK tax advisor or if a change in UK tax advisor is required, or you would like to know more about the above, it would be a pleasure to speak to you. Please email Maggie Gonzalez with the subject ‘RTC’ and we can arrange a mutually convenient time for a call.

 

About the author

Maggie Gonzalez

+44 (0)20 7556 1370
gonzalezm@buzzacott.co.uk

Requirement to Correct

The UK introduced legislation in late 2017 called ‘Requirement to Correct’ (RTC). In summary, if you do not correct an historic UK tax error before 30 September 2018, and the UK tax authorities (HMRC) later discover the mistake (e.g. through information received under the Common Reporting Standards sharing regime); there will be crippling penalties (200% of the tax plus 10% of the value of any related assets) and HMRC may publish your details on their website, which is watched by the media.

How can this affect me if I’m ‘offshore’?

The UK’s tax system has far-reaching tentacles so if you (in whatever capacity you are acting) have any connection to the UK, you should check the position carefully, and soon, just to make sure that nothing has been missed. If it turns out that there has been a mistake, it is possible to limit your exposure to just the tax missed plus any interest (i.e. no penalties).

The types of things to look out for are as follows:

Individuals

  • Have you ever received income from UK real estate?
  • Have you ever spent time working in the UK?
  • Have you ever been UK resident and received anything from a non–UK trust that you did not set up?
  • Have you ever been UK resident and not claimed the remittance basis for your overseas income/gains?
  • Have you ever been UK resident while being a beneficiary of a trust you created (especially if the structure received UK income at any level)?
  • On death, did the deceased own or gift any UK assets, including loans to a UK resident individual?

Trustees (or equivalent)

  • Have you ever received income from UK real estate?
  • Have you ever received income from other UK assets (including ADRs or equivalent over UK investments) while a beneficiary has been UK resident?
  • Have you ever held UK assets, including ADRs and loans to UK residents? If so, did you know the UK levies what is effectively a 6% ‘wealth tax’ every 10 years on such property?

Companies

  • Have you ever received income from UK real estate?
  • Has the company owned or sold UK residential property since April 2013?
  • Has the management and control of the company always been outside the UK?
  • Has the company ever carried on a trade in the UK via a Permanent Establishment?

How can I protect myself? 

If you are entirely confident that you have complied with all your UK tax-reporting obligations, you do not need to worry (perhaps make a note on your files that you considered RTC but felt there was no need to act further).

However, if you are at all uncertain, then you should seek advice from someone who can review your position and let you know where you stand.

One of the most unusual aspects to the RTC legislation is that you are generally not able to rely on the fact you took tax advice in the first place. While this may seem nonsensical, it can be solved by receiving a second opinion now, which you are allowed to rely on if HMRC successfully challenge your historic actions.

For those who actively flaunt the rules, when eventually caught, no one will be able to defend or protect them from very harsh penalties, including prison. However, although the vast majority of people we know try to get things right, sometimes there are mistakes. 

Time is not on our side – September 2018.

Other changes to be aware of

Since 6 April 2017, the UK’s Inheritance Tax regime is much wider than before so be very careful where you (any of the three above) hold an interest in UK residential property, either directly or indirectly. This includes a loan to anyone who spends the money on UK residential property in any way as well as any collateral that you provide to facilitate any such loans. We have recently seen an example where the overall charge can be 120% of the property value. 

If you do not have a UK tax advisor or if a change in UK tax advisor is required, or you would like to know more about the above, it would be a pleasure to speak to you. Please email Maggie Gonzalez with the subject ‘RTC’ and we can arrange a mutually convenient time for a call.

 

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