The 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.