HM Revenue & Customs (HMRC) has warned taxpayers to declare any foreign income or profits on offshore assets before 30 September to avoid unwanted penalties.
In its latest report, the tax office said new legislation, known as ‘Requirement to Correct’, requires UK taxpayers to inform HMRC about any offshore income which could incur income tax, capital gains tax or inheritance tax.
It explains that many taxpayers may not be aware of their rights and requirements and could incur unexpected tax penalties.
For example, renting out a property abroad, transferring income and assets from one country to another or renting out a UK property while living abroad could incur some form of tax liability.
HMRC says the most common reasons for declaring offshore tax are in relation to property, investment income and moving money into the UK from abroad.
They provide the following example which illustrates how some taxpayers may unwittingly fall foul of offshore Income Tax and Capital Gains Tax rules:
Emma has a holiday home in Spain. In 2008 to 2009, Emma started to rent out the holiday home during periods when she was not using it. The income she received from the rental of this property was never declared to HMRC.
In tax year 2012 to 2013, Emma sold her property, making a £200,000 gain on the sale. This was not declared to HMRC either.
The failure to declare the rental income on the overseas property is non-compliance involving an offshore matter as it is income arising from a source in a territory outside the UK.
The failure to declare the gain from the sale of the property is also an offshore matter as it is a gain arising on an asset held in a territory outside the UK.
Both the failure to declare her rental income and the gain from the sale of the property are offshore matters and must be corrected under the RTC rule.
The Financial Secretary to the Treasury, Mel Stride MP, said: “Since 2010 we have secured over £2.8bn for our vital public services by tackling offshore tax evaders, and we will continue to relentlessly crack down on those not playing by the rules.
“This new measure will place higher penalties on those who do not contact HMRC and ensure their offshore tax liabilities are correct. I urge anyone affected to get in touch with HMRC now.”
The notice comes ahead of the new Common Reporting Standard (CRS), which will allow more than 100 countries to share financial data. HMRC said this will “significantly enhance HMRC’s ability to detect offshore non-compliance”.
The CRS comes into effect from 1 October.