HMRC have ‘bulk mailed’ letters to wealthy offshore fund holders, which is understood to be connected to their receipt of information from overseas jurisdictions and financial institutions, following global data sharing of information.
The Common Reporting Standard (CRS) has enabled HMRC to receive financial information from over 100 countries, which now puts them in a unique position to pinpoint taxpayers who have either innocently, or deliberately chosen not to report income from ‘Offshore Collective Funds.’
These letters ask recipients to check that they have correctly declared money received from these overseas investments, and imply they have information to suggest that individual may have been in receipt of related income or gains.
The taxation treatment of these funds is particular complex, and HMRC will be aware that many UK residents simply do not appreciate the reporting obligations connected to these arrangements. With that in mind, the letters go on to outline how to ensure their last tax return is correct, with an attached factsheet, providing detailed information about how the tax system works for each type of fund.
The UK introduced new legislation in 2009, which specifically changed the UK tax treatment of Offshore Funds. This placed them into two separate categories, with two different tax treatments, i.e. ‘Reporting Funds’ (RF) and ‘Non Reporting Funds’ (NRF).
The distinction is important. If a RF, any profits on sale would be subject to capital gains tax at say 20%, but a similar gain realised from a NRF would instead create an income tax charge of up to 45% (46% in Scotland). In addition, many RFs regularly accrue interest or dividends which aren’t necessarily distributed, but rolled up within the fund. This rolled up dividend is taxable, irrespective of this not being paid out, which many taxpayers simply don’t appreciate.
HMRC have provided various disclosure facilities over many years to facilitate full declaration of offshore income that may not have been reported historically. This ‘amnesty’ has now effectively closed, and HMRC will apply tax geared penalties of up to 200% of any unpaid tax. It is more important than ever before to ensure offshore income and gains are reported correctly.
If you have received one of these letters from HMRC and are unsure what to do next, please get in touch – we have the specialist knowledge and international tax expertise to confirm your particular tax position, and thereafter negotiate with HMRC, for and your behalf.
By Lynn Gracie, Private Client Tax Senior Manager at AAB
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