Many of us will remember the adverts ‘tax doesn’t have to be taxing’. I am sure that many of us will disagree. The tax legislation in the UK has grown significantly in the last 25 years,
There was an infographic on LinkedIn recently where someone had piled up the legislation and put a bottle of gin next to it – the legislation was almost twice as high, writes Imogen Lea, tax and trusts consultants at Wilsons Solicitors.
In recent years many people’s affairs have taken on a more international dynamic. This may be a holiday home in the south of France, work secondments to Hong Kong or relocating to Canada and Australia for a couple of years or possibly their lifetimes.
The result is that a person may be liable for tax in different jurisdictions and so the tax is doubly taxing.
Case study
I had a client many years ago who told me he had received a dividend of €30,000 (£25,808, $36,455), but had been advised not to declare it to the UK tax authorities. But since he was resident and domiciled in the UK, we needed to report it on his tax return albeit potentially with a tax credit for tax paid in the foreign jurisdiction.
The client was perplexed and needed a number of conversations before accepting that it had to be reported here.
There are two reasons for why this was and is a potential issue. The first is straightforward – tax avoidance. The second is darker and relates to anti-money laundering. The issue with the client above happened in 2004 when the 9/11 attacks had meant the then G7 nations put a new emphasis on money laundering to combat terrorism funding.
A combination of these two issues have resulted in increasing amounts of regulations both nationally and internationally along with much more global cooperation in sharing data.
The burden is not just on individuals to ensure that their affairs are compliant; there are ever more regulations on institutions including, but not limited to, banks, accountants, financial advisers, lawyers, and mortgage brokers.
Seek professional help
HM Revenue & Customs (HMRC) has been equipped with powers not just in acquiring data on people’s offshore financial matters, but also with issuing significant penalties – potentially 200% of the tax owed – and going back further.
It is always advisable that if HMRC does contact a person, that they speak to a professional as soon as possible and seek to contact HMRC about the matter so it can be resolved.
Needless to say, if an individual is planning on moving either themselves and/or their assets between jurisdictions, it is important to seek advice in both areas to understand the tax implications.
For example will a person’s residence status change or could they potentially be regarded as resident in more than one country? If leaving the UK, will there be issues involving previous tax planning here? If looked at in advance there may be potential planning opportunities; for instance, if you are moving to the UK can your non-UK financial affairs be structured so they do not need to be taxable in the UK?
Nevertheless, it is important to bear in mind that the position is constantly changing and new rules can come in quickly.
On a noticeable scale, this was demonstrated with Brexit. Depending on whether you left, or came to the UK on or before 31 December 2020 or after, depended on which social security regime you fell into with the latter position not being clear for a number of weeks into 2021.
But it can be on a smaller scale. For example, due to covid, has an individual inadvertently acquired a new residence as they have been caught in lockdown either in the UK or abroad?
This means that if a person’s affairs do have an international dimension, it is important to seek professional advice in both/all jurisdictions.
Not only does this ensure that income is being appropriately reported and taxed, but the international data sharing and anti-money laundering regulations are only likely to get tighter and so engaging with them now should ensure that there are no unexpected letters from HMRC or its foreign equivalent in the future.
This article was written for International Adviser by Imogen Lea, tax and trust consultant at Wilsons Solicitors.
