Letter from HMRC about overseas assets

Flatulentoldgoat

Retired family member has an investment fund in north america. Family member is from the said country. Had it for years (decades) and has lived in the UK for decades. Suddenly a letter has been received from HMRC who are apparently now aware of it and are requesting further details / declaration. First time ever in all these years. Said family member pays tax on the investment in the said country. Family member has not drawn down or transferred anything over recently (within the last few years)

Thoughts or guidance here?

Flatulentoldgoat

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Jeremy535897

As a long term resident here (at least 15 out of the last 20 years), the individual is liable to UK tax on worldwide income and gains on an arising basis, as they are deemed domiciled here. Presumably tax is due in the US because US citizenship has been retained, rather than them being US resident as well as UK resident?

Unfortunately the UK US double tax agreement is virtually useless so far as US citizens resident in the UK are concerned, and they pay both US and UK tax on almost everything. In practice this means that one country (the UK) normally gives credit for US taxes paid , so long as the income or gains have a US source. See Article 24.6 of the double tax agreement:

"6. Where the United States taxes, in accordance with paragraph 4 of Article 1 (General Scope) of this Convention, a United States citizen, or a former United States citizen or long-term resident, who is a resident of the United Kingdom:
(a) the United Kingdom shall not be bound to give credit to such resident for United States tax on profits, income or chargeable gains from sources outside the United States as determined under the laws of the United Kingdom;
(b) in the case of profits, income or chargeable gains from sources within the United States, the United Kingdom shall take into account for the purposes of computing the credit to be allowed under paragraph 4 of this Article only the amount of tax, if any, that the United States may impose under the provisions of this Convention on a resident of the United Kingdom who is not a United States citizen;
(c) for the purposes of computing United States tax on the profits, income or chargeable gains referred to in sub-paragraph (b) of this paragraph, the United States shall allow as a credit against United States tax the income tax and capital gains tax paid to the United Kingdom after the credit referred to in sub-paragraph (b) of this paragraph; the credit so allowed shall not reduce the portion of the United States tax that is creditable against the United Kingdom tax in accordance with sub-paragraph b) of this paragraph; and
(d) for the exclusive purpose of relieving double taxation in the United States under sub-paragraph (c) of this paragraph, profits, income and chargeable gains referred to in sub-paragraph (b) of this paragraph shall be deemed to arise in the United Kingdom to the extent necessary to avoid double taxation of such profits, income or chargeable gains under sub-paragraph (c) of this paragraph."

See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507431/usa-consolidated_-_in_force.pdf

Flatulentoldgoat

Canada, sorry..

Jeremy535897

Whilst there is no "saving clause" in the UK Canada double tax agreement, the point is that as a UK domiciled and resident individual, the retired family member is liable to UK tax on worldwide income and gains, as I said above. Canada can still tax certain Canadian source income at a relatively low rate (up to 15% on dividends, 10% on interest), which is presumably why you say tax has been paid in Canada. Credit is given in the UK for the Canadian tax paid. See Articles 10, 11 and 21:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/496655/canada1978-dta2014-consol_-_in_force.pdf

Cook_County

All the professional bodies agree that one should NEVER fill in the certificate attached. Income and offshore income gains have not been declared to HMRC. The official HMRC WDF is almost certainly the best possible approach. Make a disclosure using the Worldwide Disclosure Facility - GOV.UK (www.gov.uk)

laticsforlife

You say 'the last few years', but right now HMRC would have the power to assess your family member (if there indeed is any liability) back to 2011/2012 under the Requirement to Correct Legislation.  That's 9 years ago, so did they draw anything from it since then?

It's not that he/she has necessarily done anything wrong, but HMRC know they have offshore assets, and that they haven't declared any (worldwide) income or gains, which on the face of it, is at odds.

It might be wise for said family member to seek professional offshore tax advice on whether they have or indeed had a UK liability since 06/04/2011, and whether the WDF as mentioned above is the right way to go - it would save a potential investigation being started perhaps needlessly.

Flatulentoldgoat

Thanks, appreciated. If worst comes to worse, would it be possible to leverage personal allowance to offset liability? I don't think said family member has used their full allowance in the years from 2011 onwards.

Jeremy535897

If the family member has unused personal allowances, these would be deducted from the foreign income in calculating any tax, interest and penalties. Does the family member complete a tax return?

Flatulentoldgoat

Jeremy535897 said:

If the family member has unused personal allowances, these would be deducted from the foreign income in calculating any tax, interest and penalties. Does the family member complete a tax return?

Jeremy535897 said:

If the family member has unused personal allowances, these would be deducted from the foreign income in calculating any tax, interest and penalties. Does the family member complete a tax return?

No they don't, plus they've been retired for many years

Jeremy535897

This matter needs to be dealt with urgently. I suggest that the first thing to do is calculate for each of the last 9 years:

• the unused personal allowance, if any
• the income undeclared
• the Canadian tax paid on that income

If there is a liability, it would be sensible to take professional advice.