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HMRC compliance crackdown.

HMRC recently started sending out letters to taxpayers suggesting they may have failed to report income and/or gains from both offshore funds and UK residential properties owned by overseas companies. Are you affected?

Offshore funds – An incorrect declaration of gains 

HMRC is contacting individuals whose tax affairs are dealt with by the Wealthy and Mid-Sized Business unit. It is asking taxpayers to check that their income and gains from offshore investment funds have been properly declared.

The tax treatment of offshore funds is a complex area. Since 2009, such funds have been broadly separated into Reporting Funds and Non-Reporting Funds. The tax treatment of the different types of funds is markedly different. In particular, gains arising on the disposal of interests in non-reporting funds are charged to income tax rather than at the potentially more favourable capital gains tax rates. This also means that losses on disposals of interest in similar funds cannot be offset against the gains charged to income tax.

The disparity in tax rates means that the incorrect declaration of such gains could potentially have resulted in significant underpayments of tax which could also attract penalties and interest charges.

Even where a fund has reporting status, compliance for investors is not straightforward, as there may be income retained in the fund that must be declared on the investor’s tax return in addition to the dividends received. 

If you have invested in offshore funds and have any concerns as to whether income and gains have been reported correctly, please fill out the form below to get in contact with a member of the Private Client Team.

Residential properties owned by overseas companies – letters not to be ignored

HMRC is also contacting both owners and occupiers of UK residential property where the registered owner is an offshore company.

The letters separately request detailed information from both the owner and the occupier of these properties and may well cause significant alarm to the occupiers.

It is likely that in the majority of cases the appropriate non-resident landlord registrations will be in place and reporting requirements are already being complied with.

However, it would be unwise for such letters to be ignored. If HMRC does not receive a response, the next move will be to open formal enquiries.

If you have received a letter from HMRC and are uncertain how to respond, please fill out the form below to get in contact with a member of the Private Client Team.

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To enquire about any of the issues raised in this article, complete the form below to get in touch with a member of our Private Client team. 

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