UK expats face ‘double whammy’ over tax affairs

The government is ready to restrict British expatriates’ tax benefits in a bid to get agreement with the European Union over renegotiating the UK’s terms of membership, according to press reports.

The Guardian has reported that expats could be banned from claiming tax credits for up to four years as part of a compromise Prime Minister David Cameron is negotiating with other EU leaders.

“In an attempt to win support for his proposal to ban EU migrants from claiming in-work benefits for four years, the prime minister is looking at whether the ban could apply to Britons who live abroad for four years or more,” the report stated.

“The plan could prove controversial among British workers who take advantage of EU free movement rules to relocate to countries such as Spain, and who would expect to be able to top up low wages through tax credits on their return to Britain.

“Downing Street appears to be ready to risk a row with such expatriates as the price for brokering a compromise with fellow EU leaders on Cameron’s welfare proposals, which are the most difficult part of his EU renegotiation (ahead of the UK referendum on EU membership).”

Meanwhile, the Daily Telegraph is reporting that anyone owing UK tax on their overseas income will face punitive penalties of at least 30 per cent of tax due – and potentially criminal prosecution – under legislation currently being considered.

Alison Steed, founder of personal finance website MyMoneyDiva.com, wrote in the ‘paper, “According to the Chartered Institute of Taxation (CIOT), the new rules could catch out innocent expats, such as pensioners, who have made mistakes simply because they don’t understand the complicated international tax rules they are subjected to.

“Under draft legislation announced in November, there are plans afoot to make anyone with an unpaid offshore tax liability a criminal. Under this legislation, the need to prove intent for the most serious cases of failing to declare offshore income and gains has been removed, according to the Chartered Institute of Taxation. This means it is a ‘strict liability’ offence.”

Jon Preshaw, chairman of the CIOT’s management of taxes sub-committee, said, “It cannot be right that an individual who simply makes a mistake in their tax affairs, without any intention to act wrongly, should be charged with, and possibly convicted of a criminal offence; think of an elderly person who does not realise that funds are taxable in the UK because they have already been taxed in an overseas jurisdiction; or someone who inherits an offshore account without any direct knowledge of it. Taxpayers in these situations should not face criminal charges.

“The CIOT strongly supports HMRC’s efforts to tackle tax evasion and we agree that the Government should be putting resources into combatting and investigating it. However, HMRC already has the power to criminally investigate anyone with either UK or offshore untaxed funds where they can show these were deliberately not declared. If they cannot show dishonesty or criminal intent then civil penalties, up to double the amount of tax owed, in addition to the tax itself, can still be levied. These are serious powers which HMRC should arguably be making greater use of, and we are unconvinced that this additional ‘strict liability’ offence is justified.”

Initially the threshold for new offence was set at £5,000 but this has now been increased to £25,000 in a move welcomed by the CIOT.

Ms Steed added, “It is also worth remembering that while the sharing of banking information internationally is due to come into effect from January 2017, it will actually see data shared as far back as January 2016 – so if you have anything that you need to clean up in terms of your offshore tax affairs, now would be a good time to start looking at it, with advice from an independent tax expert.”