UK taxman warns expats that tax evasion penalties will get tougher in 2016

With a new year on the horizon it is often at this time when people start thinking about fulfilling a dream of moving abroad and making plans. Others may be thinking about moving back home.

For people paying tax in the UK, the country’s tax man has come up with a guide on what they should know in terms of their finances and tax obligations, especially if 2016 turns out to be a transition year when they mover overseas or come home.

Tax SqueezeThe tax rules also apply to expats in the UK who may have property that is let out, investments in other countries and income from outside of the UK and penalties for evading tax are set to get tougher in 2016.

The guide from HMRC explains that they need to notify the taxman of their plans and have to work out where their income is coming from. This also affects expats who have come home but still have assets, bank accounts and income from abroad.

It points out that income is considered “offshore income’ if it comes from a territory outside the UK and includes interest from overseas bank or building society accounts, dividends and interest from overseas companies, rent from overseas properties and wages, benefits or royalties earned outside the UK.

“It is important for UK taxpayers to declare offshore income. If you are a UK resident, you are breaking the law if you fail to tell HMRC about your taxable offshore income. HMRC is getting tougher on those who try to evade tax by hiding their assets or income offshore. We are increasing the size and range of penalties charged, and increasing the number of prosecutions of serious evaders,” said a spokesman. “If you’re having trouble working out whether you have paid the right amount of tax or have offshore income you need to declare, you can either get help from HMRC or consult a tax adviser.”

The guide points out that because laws and specific circumstances can change, advice that people had in the past may no longer be valid. “HMRC has unfortunately seen taxpayers who’ve sought guidance in good faith, get caught out because they received poor or even incorrect advice. It’s important to check your tax affairs regularly,” the guide explains.

It also points out that if you’re not resident in the UK for tax purposes you won’t usually be liable to pay tax in the UK on offshore incomes and gains but it’s important to check your residency status and what’s taxable from offshore income.

The UK is among many countries around the world that are getting tough on tax evasion. In the UK the current disclosure facilities which people can use to get your affairs in order will be closing on 31 December 2015.

“After this date, you will still be able to tell HMRC about any undeclared offshore assets or income, but penalties will be tougher. If you’re concerned, now is the time to come forward,” the spokesman said, adding that a new international agreement will make it harder to evade tax on offshore income.

“HMRC will soon be receiving more information about international investments and financial structures held offshore by UK tax residents. Over 90 countries and jurisdictions have already committed to exchange this data,” he explained. “HMRC is cracking down on those who help others to evade tax offshore. New laws will punish the enablers of evasion, not just the evaders themselves. Enablers can face civil penalties, criminal prosecution and public naming.”

He also explained that there is nothing wrong with having investments overseas. “As long as you declare all taxable income and gains on your UK tax return you have nothing to worry about. If you are confident that your tax affairs are up to date, you don’t need to do anything further. If you are unsure, we recommend that you speak to an adviser,” he added.