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Requirement to Correct: a chance to declare your overseas assets

HMRC’s new Requirement to Correct initiative should be on your radar if you’re a UK taxpayer with overseas assets that have generated foreign income or capital gains.

With HMRC increasing its focus on tackling tax avoidance and evasion, it’s vital that your overseas and offshore finances are in order. If you’ve not declared the correct foreign income and assets, you have until 30 September to do so – or face the prospect of some fairly significant penalties.

So here’s our overview of the Requirement to Correct initiative, and the key areas of overseas income and gains that you’ll need to review and declare to HMRC.

What is the Requirement to Correct (RTC) initiative?

The Requirement to Correct (RTC) is part of HM Revenue & Customs’ (HMRC) initiative to reduce what they perceive to be tax evasion by UK taxpayers.

If you’re UK-resident, then you’re legally required to report on your worldwide income and capital gains to HMRC – and pay whatever taxes are due on that overseas income and gain.

To crack down on possible tax evasion, HMRC has partnered with other international tax authorities. That’s allowed the exchange of data between the various tax authorities, providing a transparent view of your overseas finances and making any unpaid taxes more visible.

What the RTC initiative does is provide an amnesty period for UK taxpayers to declare any unsubmitted overseas income, capital gains or assets, with a 30 September 2018 deadline for making declarations.

If you miss this window, then you’ll be hit by the Failure to Correct (FTC) initiative that comes into play on 1st October 2018 – and that may mean being hit with some harsh penalties. For example, the standard penalty will equate to 200% of the value of the unpaid taxes.

Who will be affected by RTC?

The RTC initiative is aimed squarely at individuals, and will have the biggest impact if you’re a UK resident high-net-worth individual with overseas financial interests.

RTC covers income tax, as well as inheritance tax (IHT) and capital gains tax (CGT). So it’s vital that all your overseas income and gains are included in your return to HMRC, and that you pay the relevant taxes that are due, whether that’s Income Tax, IHT or CGT.

You may be unaware of this requirement to declare your overseas income or gains to the UK authorities. But HMRC’s view is that ignorance of the law is no excuse – so it’s vital to review your finances and to pinpoint anything that should have been declared.

HMRC will assess any undeclared income and gains, based on the circumstances. So it comes down to how severe HMRC judges your error to be.

This will fall into three broad categories:

  • Carelessness – if HMRC judges that you’ve been careless, it may not levy a penalty.
  • Failure to take reasonable care – if you’ve failed to take reasonable care, you’ll be required to pay a small penalty relating to the undeclared taxes.
  • Deliberate tax evasion – if you’ve intentionally evaded paying tax, or there was tax evasion with deliberate concealment, you’ll be facing much harsher (and more costly) penalties on the evaded tax.

The degree of your error will be reflected in the penalties you pay, with the largest penalties reserved for intentional and deliberate tax evasion that’s cost the revenue money.

What assets should you consider and review?

If you believe you have overseas income and gains, it’s vital that you declare these before the deadline. But what should your next step be to make yourself compliant with the RTC rules?

Part of your end-of-year checklist should always include reviewing your foreign income, and making sure that the relevant taxes are paid on that income. So it’s vital that you and your tax advisers are proactive in keeping on top of your overseas sources – and submit all the relevant information, data and numbers to HMRC for the required tax year.

It’s also important to remember that you personally are liable to HMRC for any errors relating to unpaid taxes, even if you’re working with a tax adviser who acts as your agent,

What are they key things to review and consider?

  1. Bank accounts and interest – if you have overseas or offshore bank accounts, you should check if they are non-interest current accounts, or if they are savings accounts that provide interest. If interest was paid, you need to declare that income.
  2. Overseas property – if you’ve sold property outside of the UK, there may be taxes to pay on your gains from that sale.
  3. Rental Income – if you own property overseas and rent that out (e.g. as a holiday let), you must declare that rental income to both the local tax authority and with HMRC.
  4. Shares or investments – if you have shares in overseas companies and have received dividend income from those investments, you will need to declare that income.
  5. Inheritance – IHT covers all worldwide assets, so if you are UK domiciled or you are deemed UK domiciled (example, you moved to the UK), any overseas assets that you own or inherit will be liable for UK Inheritance Tax.

This is by no means an exhaustive list, but it gives you a starting point for assessing your overseas financial interests and ensuring compliance.

How we can help with RTC

If you’re concerned that overseas income, gains or assets may not have been full declared, please do come and talk to us here at Haines Watts North London.

Well be happy to review your financial and tax affairs to ensure you’ve made HMRC aware of any relevant foreign assets and income, and to meet the 30 September cut-off date.

Contact us to arrange a meeting with one of our tax advisers

About the author

Bilal Mahmood

Bilal started his career as a trainee Tax Advisor in Scotland. He is a qualified Tax Technician (ATT) and Chartered Tax Adviser (CTA).

He has a wide-ranging knowledge of tax and advises clients in many areas including Capital Gains Tax, Inheritance Tax, Trusts, Investments, Residency and Business Restructuring. He specialises in the complex area of Property taxation.

If I wasn’t doing this I’d be: a historian specialising in ancient and medieval history.

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