UK tax residents with undeclared overseas assets have only months to get their affairs in order or risk a greater threat of criminal prosecution.
UK individuals have until the end of 2015 to register for the Liechtenstein Disclosure Facility, a mechanism allowing those with undisclosed assets to become compliant with HM Revenue & Customs while paying only limited penalties and immunity from criminal charges.
The closure of the LDF, brought forward from April 2016 earlier this year, coincides with the introduction of the so-called “common reporting standard”, which will see more than 60 countries exchanging details of individuals’ bank accounts and trusts on a systematic and automatic basis designed to alert the HMRC on UK taxpayers’ overseas assets that they are currently not paying tax upon. There is suspicion that the LDF early closing indicates HMRC is no longer compelled to proffer beneficial conditions which would then allow HMC to receive the tax revenues.
These above mentioned exchanges of information under the common reporting standards will not start until September 2017, the UK government has said the LDF will be succeeded by a “tougher last chance” disclosure facility that include penalties of at least 30 per cent of the tax owed plus interest, and without immunity from criminal prosecution. The current thinking in the industry is that the 10 per cent penalty on underpaid tax clearly marks the most beneficial choice for UK tax residents with assets located overseas. This tactic of collection of past-unpaid taxes has been most beneficial for the HMRC with LDF that has raised just under £1.1bn between 2009 and the end of March 2015. Note: A similar disclosure facility for assets held in the Crown Dependencies, which includes the Isle of Man, Jersey and Guernsey has a surprisingly lower percentage of just over 5% of the Government’s expectation. This Crown Dependencies disclosure program will close in just 3 months, December 31, 2015. These types of programs are similar to the U.S. voluntarily tax amnesty programs that have been functioning for several years now and if they are anything to go by with HMRC, it is doubtful that a better Government deal will be offered later and the actual criminal prosecution on tax underpayment will be a real probability.
Unlike the U.S. Department of the Treasury, the HMRC is preparing for making tax evasion by under-reporting assets overseas treated as a strict liability test. In other words, if it is proven that you were involved in under-reporting because of ignorance of the law and/or reliance on others and tax professionals; you will be automatically deemed to be guilty of a criminal offence without any mitigation for your unintended consequence of tax evasion.
There are likely to be many UK individuals who are completely unaware that certain past structures set up for them that are no longer deemed acceptable by HMRC. This would include individuals who relocated overseas years ago under tax advice to put their assets into discretionary trusts without revisiting the legality of this structure in the UK. When the exchange of information starts to automatically dump into the computer filters of the HMRC software controls, countries such as Gibraltar, where many expatriates’ trusts are often managed, the beneficiaries could find they now have outstanding UK inheritance tax liabilities!
Please call Michael B. Nelson, Esq. if you have any questions on this article or need legal counsel.