Offshore matters – Worldwide Disclosure Facility

The first recent case of the ones mentioned below, involving offshore matters, shows how many people on inheriting property, can easily lose track of the tax consequences following this.

One lovely professional lady resident in the UK had lived all her life up to her date of marriage abroad in France.

She been in this country for over 30 years and had two children who had grown up and married here. She worked in the UK and had not had cause to think about her overall tax position following the death of her father.

She had inherited a house and a flat there and subsequently these were sold in two different tax years.

The funds from the sales of these properties were then transferred into a UK High Street bank.

This case shows how HMRC have access to deposits to your UK bank accounts particularly when they come from abroad. The money had not come into her bank from any volatile country but one that was part of the EU. There was nothing involved in these transfers to flag up anything of a fraudulent nature or a money-laundering nature.

One day the dreaded brown envelope landed on her mat stating that HMRC were aware that she may have some offshore connection and may have received money from an offshore jurisdiction.

Most of these letters indicate that HMRC are fully aware of what has transpired but they offer an olive branch. This is in the form of the worldwide disclosure facility. They offer taxpayers the chance to logon and register online for the worldwide disclosure facility. This ensures that you fully declare anything relevant, however it means that the taxpayer and their advisors do all the work and HMRC can just sit back and wait for the disclosure details and the money to come in. In these cases, HMRC do not undertake an enquiry themselves initially into the case.

On receiving a copy of the clients opening letter from HMRC I immediately picked up the phone to them and spoke to a very amenable officer on the worldwide disclosure team. They are not in the business of playing cat and mouse anymore and trying to entrap you into making an inadequate or incorrect disclosure. In this case the officer was able to give me precise details of the sums of money they were aware of, that had landed into her UK HSBC account. In checking the dates, I could see that the sums had come direct from abroad from the sales of those two properties in those two tax years. This prevented a lot of work as it quickly flagged up what HMRC were looking for.

We therefore knew that provided we declared the source of these funds there would be no lengthy ongoing enquiries by HMRC. They would be able to tick the box that we had declared exactly what they were looking for. We did this plus some other areas that were revealed during my enquiries.

In this case the properties have been sold and a large amount of capital gains tax had already been paid in France. This was taken from her at the point of sale and luckily, she held all of the paperwork. Other matters came to the surface during the investigation involving a little bit of rent and bank interest abroad as well as some investment income there. All of this was wrapped up in the worldwide disclosure facility disclosure.

I was able to also draw up a full report of the circumstances and send it to HMRC separately to the online disclosure which allows you to get very little information on
Online portal.

I was also able to attach all the documents showing the sale the proceeds and the tax suffered abroad.
Double taxation agreements exist to ensure that you do not pay tax twice but only pay it in the highest jurisdiction. The French tax deducted more than covered the UK capital gains tax due and no further capital gains tax was payable.

Tax and interest were paid, and a small penalty charge based on her non-deliberate action in failing to declare these two sales on her UK tax returns which she completed annually. She had a very good reasonable excuse in as much as she had inherited the properties rather than bought them herself. And she had paid tax abroad which more than covered the UK tax due. She owed some tax on rental income received from a sitting tenant in one of the properties which she became entitled to from the date of death. There was also money invested abroad for a period of time in bonds in a French bank. All of this was wrapped up within the worldwide disclosure facility.

HMRC accepted this without question as it was clearly laid out for them. As the client completes annual tax returns in the UK she is now alerted to any future offshore matters of relevance and will ensure of course that these are declared along with all her other income.