HM Revenue & Customs (HMRC) is busy writing to taxpayers with overseas properties and investments to check they have declared the right amount of income and gains.
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HMRC is utilising information reaped from specialist software, agreements with overseas governments, letting agents and financial firms.
The latest information comes from signing tax information swapping pacts with former tax havens with British connections, like the Isle of Man, the Cayman Islands and British Virgin Islands.
Tax advisers are warning anyone receiving the letters not to ignore them, because failing to make a response will lead to a full-blown investigation.
The warning comes from tax firm Gabelle after queries from taxpayers passing on the letters.
Tax misconceptions
“HMRC has many sources of information and they are checking out individuals by asking them about their domicile,” said a spokesman.
“It’s a common misconception that people who are from another country but living in the UK do not have to pay tax on their overseas assets.”
The situation for many expats coming to the UK is that they are not liable to pay income tax or capital gains tax in Britain on their overseas income or assets.
The problem also works in reverse – many British expats living or working overseas retain tax residence in the UK and should declare their worldwide income and assets to HMRC.
“Domicile impacts on where someone pays taxes and it is often a complicated issue to work out,” said the spokesman.
Tax drag net expands
“Failing to respond to the letter or not clarifying the questions asked will more than likely lead to HMRC opening a tax inquiry to establish the facts in order to find out if any tax is due.”
More people are likely to be caught in the tax inquiry net, says the firm, as Britain has signed up to the US Foreign Account Tax Compliance Act (FATCA) and will receive information about taxpayers with bank accounts and investments in the US.
Next year, a wider FATCA-type agreement between the 34 Organisation of Economic Co-Operation and Development countries comes into force, while the European Union is looking at a similar arrangement between the 28 member states.
“If HMRC does not know about someone’s overseas finances now, the chance is they will find out a lot more over the next two years,” said the spokesman. “Best advice is for anyone who has yet to do so to put their tax affairs into order sooner rather than later.”
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