Thousands of British expats could face tax penalties for undeclared cash: report
The first set of ‘hidden’ financial data about Britons living abroad is set to be handed to the UK’s Revenue & Customs later today, as part of the global transparency drive that has been introduced via a series of information sharing agreements across the world’s financial centres.
As a result, thousands of expats with undeclared savings accounts are potentially at risk of being hit by large tax penalties, once the information is transferred to the country where they live, according an article published in the Financial Times.
Banks, building societies, insurance companies and investment companies are required to provide HMRC with data about their overseas clients’ accounts — including balances — by the end of today. Information will then be shared across a series of global financial centres with action against tax evaders to begin by September, the FT report said.
As reported, UK tax evaders who fail to “come forward and pay outstanding taxes from offshore investments and accounts” may face even tougher penalties, “of up to three times the tax they try to evade”, as well as an increased risk of facing criminal charges, HM Revenue & Customs said last year.
Tax data exchanges in both directions have been agreed via tax authorities across the world under the transparency initiative known as the Common Reporting Standard (CRS), across the last 12 months, following on from last April’s Panama Papers data leak, that exposed the true extent of widespread global tax evasion.
Similar deadlines apply in other countries that have adopted the CRS. A first wave of 50 “early adopter” jurisdictions will make the first exchange of data relating to accounts holding more than US$1m by September 2017, the FT said.
The first 50 include most European countries, the Crown Dependencies and overseas territories. Smaller accounts and those based in another 50 jurisdictions, including Switzerland, Monaco and Singapore, will begin to be exchanged in September 2018.
While the information transfer is aimed at unearthing tax evaders, it might also pose a threat to thousands of expats who had not intentionally dodged their tax obligations, advisers said.
According to experts, many British expatriates wrongly believe that if they comply with UK tax rules, they would not have to declare their income in the countries where they lived. In most countries, however, people are taxed on their worldwide income, gains and, in some cases, wealth.
Jason Porter, a director of Blevin Francks, a financial planning firm, said there was a “particular problem” with individual savings accounts (Isas), which were taxable abroad even though they were tax-exempt in Britain.
“A lot of people who leave the UK look at their Isa accounts and still think they are tax-efficient,” Porter told the FT.
He advises that anyone with undisclosed assets should seek advice about coming forward voluntarily, which was likely to result in reduced penalties. But he warned that some countries imposed heavy fines, citing the case of Spain where, he said “horrific” penalties for non-declaration could even exceed the value of the assets.
In 2015, a pensioner living in Granada appealed to the European Court of Justice after he was ordered to pay more than €442,000 in interest, fines and other costs, following a late disclosure of €340,000 of stocks and cash in Switzerland, the FT said. The European Commission has since told Spain that its fines for failure to comply with an asset reporting rule it introduced in 2013 are disproportionate.