Are you reporting your foreign income?

A number of our clients have recently received a letter from HMRC regarding overseas assets, income or gains.

Whilst most people are aware that if they are resident in the UK, they will have to pay tax on their UK income, many do not realise that they will also need to pay tax on foreign income, such as:-

• Foreign investment income, for example dividends and savings interest

• Rental income on overseas property

There are those who are aware, but do not report this income as they believe that HMRC have no way of knowing about their overseas assets.

This may have been the case in the past, however, under the Automatic Exchange of Information agreements, HMRC have been receiving information from over 100 countries about UK residents with financial accounts and investments overseas.

HMRC have already sent out letters to thousands of individuals who they consider to be “at risk” and have recently started issuing another batch of letters. The purpose of their letter is to:

• explain that HMRC have information on an offshore asset held by the recipient
• request confirmation that their tax affairs are up to date
• ask for a signed declaration that they know of no inaccuracies in their returns or
• request confirmation that a tax disclosure will now be made

If you have received such a letter it should be taken seriously and forwarded immediately to your tax manager. It does not mean that your tax return is necessarily wrong; however, HMRC do carry out some risk assessment before sending such a letter.

If there has been foreign income that has not been reported, HMRC will need be informed of this via the Worldwide Disclosure Facility which was introduced for anyone wishing to disclose a UK tax liability relating to an offshore asset. In addition to the tax due, there will also be interest and penalties which can be up to 200% of the tax due.

The 200% penalty can be reduced to a minimum of 100% when the disclosure is voluntary, so it is more beneficial to disclose any offshore tax issues before HMRC start an enquiry or investigation.

Even if you have not received a letter from HMRC, we would ask you to review your tax affairs and if you have any assets overseas that generate income, please contact your tax manager who will be able to advise you of the next steps to bring your tax affairs up to date.