HMRC have announced the Worldwide Disclosure Facility (WDF) the latest in a long line of disclosure facilities designed to encourage taxpayers to come forward to disclose previously unreported offshore tax liabilities.
Unlike its predecessors, the WDF does not offer any favourable terms, other than the fact that HMRC state that where the disclosure is correct and complete and the taxpayer fully co-operates by supplying any further information they ask for to check the disclosure, they’ll not seek to impose a ‘higher penalty’, except in specific circumstances (e.g. where the taxpayer was already under enquiry) and they will also agree not to publish details of the disclosure. This last ‘benefit’ may appeal to higher profile individuals who may prefer to remain anonymous in their previous failures.
This is a marked difference to previous disclosure facilities that offered much reduced penalties (such as the 10% rate offered by the Liechtenstein Disclosure Facility) and guarantees against prosecution.
The WDF is targeted as a ‘last chance’ by HMRC before even more strict penalties come into force, as well as their claims that automatic exchange and data from the Organisation for Economic Co-operation and Development Common Reporting Standard (CRS) will then be available.
After 30 September 2018, new sanctions will be introduced that reflect HMRC’s “toughening approach”. They state that you will still be able to make a disclosure after that date “but those new terms will not be as good as those currently available”.
Previous experiences suggest that making a disclosure under one of HMRC’s facilities is usually a more streamlined process compared to simply writing to HMRC.
Eaves and Co would be very happy to discuss matters if you are concerned that you or your clients may have an undisclosed offshore liability, suitable for the Worldwide Disclosure Facility. We have extensive experience of making disclosures under previous facilities that HMRC have offered.
A series of articles highlighting key areas that affect taxpayers and practitioners involved with inheritance tax and estates and identifying opportunities to mitigate inheritance tax.
Inheritance Tax – Overseas Issues
Where a person is UK domiciled their estate will be subject to inheritance tax on their worldwide assets.
Therefore overseas assets such as foreign bank accounts, holiday homes etc. will be subject to inheritance tax in the UK.
Relief is given for foreign liabilities (for example an overseas mortgage) by deducting the amount of the liability from the value of non UK property. Any excess can then be set off against UK property.
Foreign Property – Deduction for Expenses
Where the estate includes overseas property, the personal representatives may incur additional expenses in connection with the disposal.
It is possible to claim a deduction for expenses of administering or selling overseas property up to a maximum of 5% of the value of all foreign property in the estate.
Thus, where the estate of a UK domiciled person includes a house in Spain worth £250,000, the personal representatives may claim a deduction for expenses of up to £12,500 (£250,000 x 5%), potentially saving inheritance tax of £5,000 (£12,500 x 40%).
Double Tax Relief
Where an estate is subject to inheritance tax in both the UK and another country on the same assets the estate may be subject to double tax.
The UK has double tax treaties for inheritance tax purposes with the Republic of Ireland, USA, South Africa, France, Netherlands, Sweden, Switzerland, Italy, India and Pakistan.
These double tax treaties set out the taxes that qualify for relief under the agreement, the taxing rights of each country in respect of different types of assets as well as the mechanism for double tax relief where inheritance tax is payable in both countries.
It is important that care is taken to review the appropriate double tax treaty carefully because the personal representatives will need to understand whether relief should be claimed in the UK or abroad.
Where inheritance tax is payable in the UK and a similar tax is payable in a country that does not have a double tax treaty with the UK, double tax credit relief should be available in relation to assets situated in the other country under the unilateral relief provisions.
For these purposes the location of the asset is determined in reference to UK law.
The amount of double tax relief under the unilateral provisions is limited to the lower of (i) the UK inheritance tax, or (ii) the foreign inheritance tax.
In cases where tax is payable in both the UK and another country in relation to an asset that is situated in a third country, or treated as situated in the UK under UK law and the other country under that country’s law, a proportion of the tax may be relieved in the UK.