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HMRC on the trail of overseas property owners

hmrcThe UK taxman has his sights set on UK-based owners of overseas property and those with bank accounts abroad, ahead of crippling new penalties for avoiding tax that come into force at the end of the summer, according to a Sunday Times article, published on June 24th, 2018.

In a ‘phishing’ expedition, HMRC has contacted a list of likely suspects and has given them until September 30th to declare rental income and any capital gains from property sales tax.

If an individual is found to owe tax, and has not ‘corrected’ their tax declarations, penalties of up to 200% of the sums owed may be levied, with a minimum of 100% penalty applied.

The UK tax department has become increasingly adept at identifying those who have overseas assets and foreign bank accounts but the current swathe of letters is aimed at those that HMRC suspects  of having offshore interests.

Areas of interest include overseas interest on savings, capital gains tax and rental earnings from foreign property - to the end of the 2016/17 tax year ending on April 6, 2017.

To add to the threat, HMRC has another weapon, an asset-based penalty of up to 10% of the asset’s value if the tax owed is £25,000 or more.

Taxpayer confusion exists as many owners of holiday homes declare their income and pay tax overseas, as in Portugal, but this still needs to be noted in the ‘foreign income’ section of the annual tax return, advised HMRC, especially when a property is sold as there may be additional CGT liabilities in the UK.

The Sunday Times reports also that HMRC is about to receive a “large cache of information from tax authorities across the world that will help it identify people hiding money abroad.”

The UK has agreed to swap information with 48 countries, with a further 53 joining the scheme in September 2018. The US already has been swapping information under the 2014 Foreign Account Tax Compliance Act (Facta) legislation.

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Comment from Dennis Swing-Greene of Eurofinesco:

Response to 'HMRC on the trail of overseas property owners'

Confusion reigns regarding short-term holiday letting in Portugal ('Local Lodging') and its eventual tax treatment in both Portugal and the UK. In Portugal, when “AL” operators complete the mandatory registration as Portuguese-based Sole Traders in Category B, the tourist activity is deemed to be a business enterprise.

In this interpretation, assessment should follow Article 7º (Business Profits) of the UK-PT Double Taxation Treaty: the income becomes solely taxable in Portugal.

Not uncharacteristically, HMRC has a different perspective, considering the income to be merely from immovable property, assessable under Article 6º of the same treaty. The 'AT' ('Autoridade Tributária') rejects this latter interpretation. Under Portuguese tax law, income from immovable property (Category F) must be long-term (more than 30 days), “bare-walls” leasing, not services to tourists (Category B).

It is up to the competent authorities of the two countries to sort out the legal semantics and fulfill the purpose of the treaty: to protect taxpayers from being taxed twice on the same income.

 

Eurofinesco

Comments  

0 #5 Todd 2018-07-10 20:58
I think the banks are driving this as distraction from their own misgivings and prevent banks collapsing with bank runs
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+1 #4 mj1 2018-06-25 20:40
I remember picking up a leaflet extolling the virtues of madeira as an offshore centre
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+4 #3 Charly 2018-06-25 08:32
Allow me this question: might there be anything wrong with "offshore" ? For decades the UK (with all its London banking offices exclusively specialised in offshore business) + Man + Jersey and most of all Gibraltar are probably "more intens" and as such "worser than Panama or Cayman or Malta or Bahamas etc". Isn't it so that ex MP's family became rich and wealthy with their "offshore facilities store" in the UK ?
Is this maybe a story "of the black stove and the dito kettel ?"
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+2 #2 Tpower 2018-06-25 02:28
FATCA is actually Foreign Account Tax Compliance Act and only came into effect in 2014.

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Amended, thanks!

Ed
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+3 #1 Charly 2018-06-24 20:05
In my opinion this is not correct information. Indeed the UK + Gibraltar + Guernsey + Jersey + Isle of Man + Ireland adhered to the CRS taks communication system (of OCED) and as such signed together with more than 100 other countries the "multilateral competent authority agreement on automatic exchange of financial account information" and intended first information exchange as from September 2017 on. That's a fact, the story told in this article seems "a funny but luducrous story". It's as funny as the fact that the finance ministery in Portugal declared that "they received extra millions of €uros without knowing from where they come" (sic)
However the answer is simple: it's due to the fact that many residents by applying the CRS rules became "fiscal resident" in the country where they really live, i.e. in Portugal.
"Brexit fever" strikes the Britons every day more and more and lead to this kind of stories.
As far as FACTA concerns: the system already exist since 2008 and the American taks authority is very keen on that. Our CRS system in a way is "copied" from Facta.
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