Resolving Offshore Tax Issues

HMRCs decision to close early the various offshore disclosure facilities and replace them with a less generous disclosure regime is based partly on the fact that the taxman will, from 2016, begin to receive more information than ever before about the offshore affairs of UK taxpayers from overseas centres and territories under the terms of various international agreements. Jurisdictions already committed to the automatic sharing of information include the Channel Islands, British Virgin Islands, Luxembourg, India, Cayman, Switzerland and Luxembourg.

From 2016/17 HMRC will begin to automatically receive and share information with over 100 jurisdictions on UK taxpayers with overseas assets. The type of information HMRC will receive (and send to other countries) includes:

• Name, address and date of birth of the UK taxpayer;
• Details of all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income);
• Bank account balances for individuals and trusts, companies and sales proceeds from financial assets;
• Details of any distributions from offshore trusts.

In addition, and despite significant criticism from tax and legal experts, the UK Government seems determined to introduce a 'strict liability' criminal offence for offshore tax evasion. While still consulting on the precise provisions it seems clear that new legislation will be introduced, perhaps as early as 2016. When effective, this new law will make it much easier for HMRC to commence a criminal investigation into any UK taxpayer who is found to have undeclared offshore income (subject to a de minimus limit).

So, with more information on offshore assets in the hands of the taxman than ever before and the increased chance of HMRC using this information to start a criminal (as opposed to civil) investigation, the question should really be: 'why would you not make a disclosure?'

With this increased transparency comes a need for clients to review their offshore arrangements. Making sure that the correct data is stored by their financial institutions, that all relevant matters have been correctly disclosed to the tax authorities and that any offshore structures held are robust and can stand up to scrutiny is now crucial.

It is not uncommon for structures that were put in place many years ago for a specific purpose to no longer deliver the required tax efficiencies due to the introduction of new UK tax legislation. Or, because an individuals' personal circumstances have changed (e.g. they have moved to another country).

If there are historic tax liabilities then real care needs to be taken in managing any approach to HMRC. As there is no longer an opportunity to obtain an absolute guarantee against criminal investigation, it is critical that your advisor is able to take the right path and is experienced in making an initial approach to HMRC.