HMRC begins intensive search for foreign trust assets

2 May 2013

This month HMRC launches a special enforcement drive to detect the use of undeclared overseas trusts to conceal assets and income.

The campaign is part of the ‘Closing in on evasion’ strategy announced by HMRC last December. It sets out a month-by-month schedule of the agency’s priorities in countering tax evasion. The summary for May 2013 runs:

• Begin new work to identify offshore trusts that are being used to hide income and wealth overseas.

• Roll out new data-driven tools to help identify affluent individuals who are evading tax.

• Seek out new data sources to improve our ability to spot wealthy tax evaders.

• Begin testing new data from the Metropolitan Police to identify fake identities being used in fraud.

• Use new data to identify and investigate offshore property ownership.

The ‘new data’ referred to here could include the many declarations that now have to be made by trustees ‒ for example, for rebasing elections or for the new annual tax on enveloped dwellings (ATED). Tax agreements with other countries, especially the new arrangements with Liechtenstein, Switzerland and the US, will also yield significant amounts of information on offshore funds with UK-resident beneficial owners, according to Gary Heynes of Baker Tilly.

HMRC claims its computer systems can now join this data together and ‘uncover the hidden links using advanced analytical capabilities’. It has a system called Connect that contains vast amounts of taxpayer records as well as information from third parties.

Most UK residents are subject to income, capital gains and inheritance taxes on assets held in offshore arrangements, and are obliged to declare them or face penalties for evasion, says Heynes.

But some innocent investors may also suffer if they have not kept up with the ever-increasing array of anti-avoidance legislation of the last two decades. ‘It could be quite easy for prior arrangements set-up with proper asset protection purposes, with minimum UK tax issues, to find they are now in the same category as those who purposefully evade taxes,’ says Heynes.

The warning especially applies to non-doms, who until 2008 could legitimately bring capital from offshore trusts tax-free into the UK. ‘The remittance basis legislation [of 2008] changed that, and doing that now could get them regarded by HMRC as a tax evader,’ commented Heynes.

Many tens of thousands of individuals were taxed as non-doms before 2008, but the number who have elected to use the remittance basis is less than 5,000. Some of the ‘missing’ non-doms may well not have realised that matters have changed, says Heynes. Those with funds in offshore trust arrangements should ensure that they are compliant in the UK, and should consider making a disclosure to HMRC before they come asking for the tax, he warns. Penalties could be as high as 200 per cent of the unpaid tax.



Baker Tilly

HMRC (PDF file)




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