As the taxman readies to crack down on British taxpayers benefitting from offshore income and investments, here’s a look at the new rules and what offshore income is.
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HM Revenue & Customs (HMRC) is cranking up penalties and action against taxpayers failing to declare offshore income.
From the end of December, the Liechtenstein voluntary disclosure scheme closes. The scheme offered reduced tax penalties to anyone confessing previously undisclosed offshore income, but when this door shuts, the severity of penalties will rise.
What is offshore income?
The definition splits into two parts –
‘Offshore’ means anywhere other than England, Scotland, Wales or Northern Ireland
‘Income’ includes –
- Interest from offshore bank or building society accounts
- Dividends and interest paid from investments
- Rent from any overseas property
- Salaries, benefits or royalties earned overseas
How do you declare offshore income?
You should tell HMRC by filling in the relevant offshore income pages of your self-assessment tax return.
Do I have to declare all my financial information?
Check with a tax professional. Offshore tax laws have changed at a pace over the past two years and advice that was relevant in the past is likely out of date now.
For instance, tests for tax residency have changed and you may believe you are an expat and subject to the tax rules of another country when you may be still considered UK resident.
Is it illegal to hold offshore savings and investments?
No, definitely not. Any British taxpayer can have offshore financial interests providing they report any interest or income they earn from them to HMRC each year and pay the proper amount of tax due.
How can I declare unpaid tax from earlier years?
Time is running out to make a clean breast of your offshore financial affairs. The voluntary disclosure schemes for Liechtenstein, Jersey, Guernsey and the Isle of Man end on December 31, 2015, so you need to register quickly to benefit from them.
HMRC also publishes a short guide explaining how offshore financial arrangements are often included in tax avoidance schemes.
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