From October, HMRC will have new powers to track down your financial information in more than 100 countries – so if you have a holiday home, bank account or pension overseas, you have just one month to report this income.
Under new rules, UK taxpayers must notify HMRC by 30 September 2018 about any offshore assets that might be liable to UK taxation – or face steep new penalties. The regulations coincide with HMRC’s increased powers to exchange data with authorities in 100 other countries.
Which? explains the new rules and what you need to declare.
What offshore income should you disclose to HMRC?
If you receive income that may be taxable from assets overseas , you’re required to report this to HMRC by 30 September 2018 under a new obligation known as ‘Requirement to Correct.’
Depending on how much you’ve made and in what circumstances, you may owe tax to HMRC and, if you haven’t paid it or notified HMRC about it, you may be considered ‘non-compliant.’
The types of income you might need to declare include:
- Rent on a holiday home you own abroad
- Income from bank or savings accounts or bonds
- Transferring money or assets into or out of the UK
- Profits from selling assets like property, art, antiques, jewellery or vehicles
- Life assurance policies or pensions
- Stocks and shares (or accounts held by a stockbroker).
Once you disclose, you may need to pay your tax bill, plus interest and any late fines. But anyone who fails to meet the 30 September deadline could face much tougher penalties, with the minimum fine set at 100% of the tax owed.
More than 17,000 people have already contacted HMRC in relation to overseas income, with the most common sources being foreign property, investment income or moving money into the UK from abroad.
Mel Stride, financial secretary to the Treasury, said: ‘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.’
- Find out more: working abroad and tax
HMRC has new powers to share data
From 1 October, HMRC will exchange data on financial accounts with more than 100 countries under a scheme known as the Common Reporting Standard.
While the UK and several key European jurisdictions have been sharing data since 2017, the scheme will grow to encompass 53 new countries this year, including Switzerland, Hong Kong, Singapore, United Arab Emirates, Australia, Canada, Panama and much of the Caribbean.
This will give HMRC access to financial information from banks in other countries around the world, greatly increasing its powers to identify non-compliance by UK taxpayers.
How does reporting to HMRC work?
You need to notify HMRC by 30 September 2018 if you have offshore financial interests that date before 6 April 2017 and are non-compliant.
HMRC has the power to look at any tax you may owe as far back as 20 years.
However, this depends on why you weren’t complying with its rules.
It can go back four years if your non-compliance was not careless or deliberate, six years if you were careless and 20 years if your avoidance was deliberate.
You can notify HMRC via its online disclosure portal. You can also tell an officer of HMRC if they inquire after your affairs.
You’ll then have 90 days to make a full disclosure, supply any documentation required and pay any tax you owe to ensure you’re compliant.
If you don’t meet the deadline, you’ll face the new penalties – unless you have a ‘reasonable excuse’. Insufficient funds or relying on someone else’s help won’t count as excuses, HMRC has confirmed.
What tax will you need to pay?
The amount of tax you’ll be required to pay on offshore assets will depend on your particular circumstances.
If you earn income from work, a pension, savings or dividends, you might be liable for income tax, though you’re allowed to earn a certain amount tax-free. You can find out more in our guide to income tax.
If you make a profit from selling an asset, you may need to pay capital gains tax. And if you inherit from a deceased loved one, and their assets are overseas, those assets will count towards their estate for inheritance tax purposes.
Meanwhile, if you live or own property abroad, you might find the following guides helpful to understanding your tax liabilities: