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HMRC has introduced new offshore penalties that will apply for the tax years 2011-12 onwards The level of the penalties in these cases varies according to how readily the foreign jurisdiction shares information with the UK, and applies to Income Tax and Capital Gains Tax.
If HMRC has decided that a penalty is due because of inaccuracies in your reporting, a failure to notify them of a change or if you've failed to submit a return for twelve months the penalty may be increased if it relates to offshore income or assets. This is because tax information from overseas is often more difficult to obtain than information from the UK and so means that offshore non-compliance is harder to detect.
The offshore penalty builds on the existing penalties for ‘inaccuracies in returns’ and ‘failure to notify’ and adds a new element to the penalty for ‘failure to make a return on time’ if it is more than one year overdue. The amount that HMRC charge under these penalties is a percentage of the tax underpaid. The tax underpaid is known as the potential lost revenue (PLR).
The penalties take account of the taxpayer’s behaviour as HMRC will consider:
Under the new legislation, these penalties will be linked to the tax transparency of the territory in which the income or gain arises. Where it is harder for HMRC to get information from another country, the penalties for failing to declare income or gains arising in that country will be higher.
A Capital Gain can arise if you sell or dispose of an asset. Where the offshore penalty is concerned this is most likely to happen if you own property, but it could apply to land, a boat, a painting, shares, or any asset held outside the UK. Capital Gains Tax does not apply to certain items and there are allowances that can reduce the tax due.
If you normally live in the UK then you are liable to UK tax on your income and taxable gains, whether they arise in the UK or abroad. If your permanent place of residence is not in the UK then you will need to establish whether you are legally resident in the UK for tax purposes.
This is an extremely complex area and any advice will depend on your personal circumstances.
We can help you negotiate these often treacherous waters.