The UK’s Chartered Institute of Taxation has been informed by HM Revenue & Customs that it is planning to bulk mail letters to taxpayers whose affairs are dealt with the by its wealthy & mid-sized business unit.
The letters, which will be posted in early November, will ask recipients to check that they have properly declared money received from offshore investment funds.
International transparency
Gary Ashford, partner (non-lawyer) and chartered tax adviser at law firm Harbottle & Lewis describes the taxation of investments in such funds as “complex”.
“Over the years it will have become clear to HMRC that many UK residents, whether UK domiciled or non-domiciled, do not fully understand how to report income or gains on disposals properly.
“There have been various UK disclosure campaigns in recent years and many of the disclosures made will have included corrections on such matters, alerting HMRC to the scale of the problem.”
He also flagged international agreements such as the automatic exchange of information and the common reporting standard as making information more readily available to tax authorities, globally.
CGT versus income tax
“In 2009, the UK introduced new rules around offshore funds, essentially placing them into reporting and non-reporting funds. The tax treatment between the two is very different, most notably with disposals of interests in non-reporting funds being charged to income tax rather than capital gains tax.
“Given that CGT rates are significantly lower than income tax, this can result in significant tax underpayments, with consequences for interest and penalties.”
He added: “Given that the UK has just been through a campaign to report all offshore income and gain correctly or face 200% penalties, I would urgently advise such investors to double check these matters have been correctly dealt with.”
Come clean while you can
The factsheet provided along with the letter offers taxpayers a chance to correct their previous tax filing if they believe they have made a mistake.
Ashford added: “HMRC can also open a criminal investigation, therefore an early disclosure is vital if there is any concern that something might not be right.
“With the tax system as it is, individuals can often fall foul perfectly innocently and, for investors with more complicated portfolios, they may not even know what specific investment they hold.
“Receiving a letter from HMRC can be an intimidating experience and, potentially, a very expensive one.”
