Partner Article

Sun, sea & HMRC: offshore trusts under scrutiny

A short while age HMRC set out their plan for tackling tax evasion by providing details of what they will be focusing on each month. This month they’ll be starting to identify offshore trusts that are being used to hide income and wealth overseas.

It is quite right that HMRC should focus on those who deliberately evade tax through offshore arrangements, and those who have access to wealth through offshore trusts should also ensure that their arrangements are still within the current tax laws. It could be quite easy for prior arrangements set up with proper asset protection purposes, with minimum UK tax issues, could find they are now in the same category as those who purposefully evade taxes quite simply because they haven’t kept pace with tax law changes.

HMRC’s long held assumption is that offshore arrangements of all kinds are done for tax planning or, even worse, evasion purposes. As a result, offshore trusts have come under attack over the last two decades through a number of changes in the tax rules. Prior to 1991, tax rules on overseas trusts were relatively relaxed and so many people used offshore arrangements. Nowadays the situation is very different. The current stringent regime means most UK resident individuals would be subject to income, capital gains and inheritance taxes on monies held within offshore arrangements.

Through the UK’s specific agreements with countries such as Switzerland and Liechtenstein, and a number of Tax Information Exchange Agreements, the UK authorities have access to significant amounts of information on offshore funds which are held for the benefit of those in the UK.

It would be wise for those with funds in offshore trust arrangements to ensure that they are compliant in the UK and/or if they are not, then look to make a disclosure to HMRC before they come asking for the tax. Ignoring the issue isn’t an option as individuals that don’t inform HMRC of their offshore arrangements could face penalties as high as 200% of the tax outstanding. Not only that, but they also run the risk of criminal prosecution, which could see them spending their summer holidays behind the wrong sort of bars….

This was posted in Bdaily's Members' News section by George Bull .