It was revealed last year that the HMRC launched a nationwide programme to target UK taxpayers who have European offshore bank accounts for the sole purpose of pursuing them for unpaid taxes on the interest earned on their capital.
The main aim of the campaign by HMRC is to identify both individuals and businesses who may not have disclosed any interest payments which have been credited to their offshore bank accounts. This PDF from the HMRC details what and where they are looking for money, it also states that the penalty for what they consider to be evasion is;
“200% of the tax due – twice the previous rate. That includes any income or gains from an offshore account or asset unless you have
no additional tax liability from them.”
If you have a reasonable excuse for not complying, then the penalties for failure to notify and failure to
file a return on time will not apply. The reasonable excuse must
• be an unusual event that is either unforeseeable or beyond your control
• apply throughout the period when you failed to comply
The European Union Savings Directive (EUSD) allows all European countries to exchange information about potentially untaxed income. Most EU accounts that have held a deposit, to which interest has been credited at some point, would mean that the interest will qualify as taxable in the UK. HMRC can access information about accounts together with the amount of interest that should have been declared.
Off-plan property purchases in many cases would fit this scenario because an escrow would have been used by their lawyer to handle the deposit. Any mortgage attached to a property purchase would have also been released to the escrow account in readiness for developers to use in construction as stage payments. The interest earned on the capital held in these escrow accounts which is taxable.
HMRC requests for information can be very detailed but it is possible to legitimately reduce the tax bill. They predicted last year that the illegal reporting of offshore banking activity would raise an estimated £1.75 billion, however, so far only £500 million has actually been found.
A joint statement was issued by The British Bankers’ Association, the Building Societies Association and the Association of Foreign Banks about the HMRC’s decision to pursue the other 170 banking institutions. The banks’ state that whilst they “do not wish to shield any customer from the force of the Revenue where illegal reporting has taken place, they do not wish to undermine their reputations and standing by making free with confidential client data.”
The BBC website also commented that regarding the tracking down of offshore tax dodgers the HMRC wrote to 1,000 of 6,000 UK citizens who had been exposed for hiding bank accounts in Geneva in Switzerland. HMRC first acquired the list of wealthy individuals, with accounts at the Swiss division of HSBC, via an employee who stole the information in 2010.
If you would like to protect your overseas property from UK tax then you may find our Tax Trust page useful.