HMRC has just updated its guidance on the new requirement to correct offshore non-compliance, clarifying details of the deadlines, and how to reduce penalties once the taxpayer becomes liable.
With the 30 September requirement-to-correct (RTC) deadline now less than 80 days away, law firms are urging their UK-resident clients, including trustees, to regularise their tax affairs, perhaps going back as far as 20 years.
Trustees who have outstanding UK tax issues relating to their settlements are subject to RTC as well as beneficiaries, says law firm Farrer & Co. The issues might have arisen in connection with inheritance tax anniversary or exit charges, or income tax arising at trust level from UK rental income, for example. ‘Even the most diligent professional trustees have a significant job on their hands to understand and stay up-to-date with the incredible amount of legislative and procedural changes to UK tax law that have been made over the past two decades’, says Farrer. ‘The picture gets even more complicated when you factor in issues such as questions over a settlor’s domicile status, loans made on non-commercial terms or the computation of UK rental profit from an underlying company, all of which could affect the trustees’ tax liability without them necessarily being aware of it.’
However, trustees will not be accountable for the UK tax affairs of non-compliant beneficiaries unless they have acted as an ‘enabler’.
The RTC penalties are frightening. The standard financial penalty will be 200 per cent of the tax due. This can be reduced if the culprit comes forward to HMRC with information, but there is in all cases a minimum penalty of 100 per cent of the tax due. Where offshore assets have been moved around in an attempt to avoid disclosure under information-exchange agreements, the penalty rate can increase to 300 per cent.
Farrer advises trustees to obtain a health check from a suitably qualified, independent professional. That should allow them to rely on the ‘reasonable excuse’ defence exempting them from penalties for failing to correct before 30 September – although any outstanding tax and interest would remain payable.
Trustees and beneficiaries are far from the only people affected. ‘Someone with a holiday home in the Dordogne who hasn’t declared rental income on it in previous years, for example GBP10,000 unpaid tax, could be liable for a fine of up to GBP20,000’, commented Lucy Brennan, partner at Saffery Champness. ‘It will be the layman who has simply forgotten to report that will suffer the most, rather than serial tax avoiders. This is a matter that cannot be swept under the carpet.’