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September 15, 2015updated 01 Feb 2016 10:17am

Seize tax-friendly disclosure schemes before it's too late

By Spear's

George Osborne is bringing an early end to facilities like Liechtenstein’s for bringing secret money to light, says Sean Wakeman of Crowe Clark Whitehill

Christmas could come early this year for some individuals, although they may not yet know it. Individuals with tax problems have until 31 December 2015 to take advantage of a number of overseas disclosure facilities, in order to regularise their tax affairs in the cheapest possible manner. If those affected do not take advantage of the facilities, they will find that the Chancellor of the Exchequer will have ruined their Christmas cheer by pulling the plug on all the current favourable terms.

If you own a property abroad, have been left money overseas or are the beneficiary of an overseas trust (perhaps created by your parents or grandparents), you need to act quickly to have your professional adviser check your affairs and confirm that they are in order. This means, in particular, ensuring that all tax has been paid in relation to the overseas assets (eg on rental income, bank interest or tax on distributions).

Other groups that could be at risk include people who have moved to the UK from abroad and still have investments outside the country, those that may have disposed of an overseas asset and kept the monies outside the UK, and anyone who, for whatever reason, may own and operate a foreign bank account or an investment portfolio.

The tax concessions which the disclosure facilities offer include a restriction on the number of years for which tax is collected, a low fixed-rate penalty and immunity from criminal prosecution for the minority who may have deliberately not paid the correct amount of taxes. People do not pay the correct amount of tax for a number of reasons, including naivety, lack of awareness regarding tax law and technical matters which sometimes extend beyond the knowledge of even seasoned accountants.

The amount of tax due from an individual will often depend on that individual’s tax residence and tax domicile status. A qualified tax professional will be able to advise quickly whether there are historic taxes due. Where tax affairs are confirmed to be in order, individuals will have peace of mind. Alternatively, if there is tax to be paid they will be able to benefit from an early Christmas present before the unprecedented benefits are snatched away and replaced by a series of far more draconian measures.

As Big Ben strikes midnight, a new era will dawn for anyone wishing to put right their tax affairs. There will be much higher penalties, full assessment of taxes (up to twenty years for deliberate behaviour) and a tripling of criminal prosecutions in respect of tax offences. A strict liability offence is also likely to be introduced in the summer which will mean that anyone who has an undeclared overseas bank account may be subject to a criminal sentence (up to six months’ imprisonment).

The proposal is preposterous since HMRC will be able to impose a criminal sanction without having to prove a guilty intent or purpose, which goes against natural law principles.

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Tax problems are often ‘inherited’ from parents or grandparents, including windfalls and bequests (possibly with the task of dealing with an overseas trust structure) where the provenance of monies is not clear even to the children who are the subsequent beneficiaries. Such inheritances often give rise to a ‘fear factor’, resulting in such assets being ignored and left untouched for many years for fear of inflaming an already difficult situation.

The disclosure facilities present a gift horse which should not be looked in the mouth, and an ideal opportunity to clear up the misdemeanours of previous generations and perhaps even gain benefit for the current and future generations, once the taxes have been paid and the assets brought into full daylight.

People who are not originally from the UK (or their parents) are a favourite target for HMRC inspectors. This is due to tax complexities introduced in 2008, as well as the fact that there are two sets of rules running in parallel which both need to be clearly understood in order for correct tax treatments to be adopted. Such individuals, otherwise known as ‘non-UK tax domiciled’, are warned to take immediate tax advice to check their tax positions.

Christmas presents should therefore be seized and opened with all due haste, before George Osborne takes them from beneath the tree whilst the turkey is still cooling. Unfortunately, tax disclosure facilities are for Christmas only this year, and not for life.

Sean Wakeman is a tax investigations partner at Crowe Clark Whitehill

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