In a year’s time, the Spanish tax
authority will have started receiving information on its taxpayers’ offshore
assets and income, under the new global automatic exchange of information regime. The UK is already being handed details of
hundreds of thousands of offshore accounts held in its Crown Dependencies and Overseas
Over a hundred countries have committed to the automatic
exchange of information for tax matters. 54 jurisdictions began collecting
information on financial assets in January 2016, ready to pass the information
onto the owner’s tax authority in September 2017. A further 47 countries start a year later.
This new information gathering and reporting requirement for
financial institutions is known as the Common Reporting Standard. Created to prevent offshore tax evasion, it
will provide tax administrations with timely information on non-compliance
where tax has been evaded, particularly where they have had no previous
indications of non-compliance.
UK dependencies and
The Common Reporting Standard was published in July
2014. Prior to that, the UK government
had reached automatic exchange of information agreements with its Crown
Dependencies (Jersey, Guernsey, Isle of Man) and Overseas Territories
(including Gibraltar, Cayman Islands, British Virgin Islands and Bermuda). In this case, information relating to
calendar years 2014 and 2015 had to be provided to HM Revenue & Customs by
30th September 2016.
The information being reported for 2014 are name, address
and tax identification number of account holder, the account number, name of
reporting financial institution, and the account balance or value at end of the
year (or immediately before closure).
For calendar year 2015 this is extended to include total gross interest
for depository accounts and gross interest, dividends or other income generated
by assets within a custodial account.
The data provided includes bank accounts, investment
management accounts, private equity funds, hedge funds, certain insurance
policies and offshore trusts.
Tax investigators will use software to sort through the data
received from multiple databases, and the revenue expects to receive up to
£300m from the new information it will receive from these territories.
The Crown Dependencies and Overseas Territories have also
signed up to the Common Reporting Standard and so will be sharing information
with Spain from next year.
HMRC warning letter
The UK tax authority is sending a warning notice to UK
residents who have received financial advice or services about overseas income
The letter, which has the header “If you have money or other
assets abroad you could owe tax in the UK”, warns taxpayers that HMRC will find
out their money and assets overseas, as from 2016 it is getting new financial information from more
than 100 jurisdictions. This includes details about overseas accounts,
structures, trusts and investments.
It asks the reader if they are confident their UK tax
affairs are up-to-date, pointing out that personal circumstances can change – for
example, they may have recently inherited overseas assets. Tax laws also change and previous planning
could be out-of-date.
Penalties for those who are not paying the correct tax on
offshore assets are increasing, and criminal prosecution is a possibility. Under new rules, tax evaders could face new
further penalties based on the value of the asset as well as the tax due,
“resulting in potentially life-changing circumstances”.
HMRC launched its Worldwide Disclosure Facility on 5th
September 2016, giving uncompliant taxpayers one last opportunity to regularise
Unlike previous facilities, it does not offer any special terms.
Taxpayers have to pay the tax due,
interest, and a minimal penalty of 30%.
They could still face criminal prosecution.
HMRC advises that, when calculating penalties, it will
consider the quality of the information disclosed as well as how long it took
the individual to put their tax affairs in order.
Once it closes in September 2018 tougher sanctions will be
introduced. Plans are for taxpayers to
then pay up to three times the tax evaded.
The UK government is also introducing a “Requirement to Correct”
obligation to compel errant taxpayers to put their offshore affairs in order
ahead of the widespread adoption of the Common Reporting Standard. Failure to do so could make individuals
liable to a new set of legal sanctions for “failing to correct”.
Jennie Granger HMRC’s Director General of Enforcement and
“Our message couldn’t
be clearer: there are no safe havens left for UK tax evaders and no-one should
be in any doubt that the days of hiding money offshore with impunity are gone.”
Cross-border tax mitigation can be a minefield for
expatriates, and specialist wealth management guidance is necessary these days
to have peace of mind – both that you are not paying more tax than necessary
and that your arrangements are fully compliant in Spain and
Partner, Blevins Franks
Tel: 952 809 212
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