Undeclared taxable income from overseas

Things are set to become very uncomfortable for investors with undeclared taxable income from overseas.

The BBC reported at the weekend that the government plans to introduce new rules to combat overseas tax evasion.

Under the current system, tax officials have to prove a person holding income offshore has intended to evade tax.

The proposed new rules would change this to show only that money held offshore was taxable and undeclared.

At the same time, the government will consult on a new criminal standard, harsher fines and increased jail sentences for tax evasion.

Combined, these proposals mean that anyone with offshore assets will need to take real care to fully declare their taxable income, or face very stiff criminal penalties.

There are still some advantages of holding investment assets offshore – particularly for higher rate taxpayers who either plan to retire overseas or are likely to have less taxable income in retirement – but investments must be very carefully managed.

Announcing the proposals, Chancellor George Osborne said:

“A very important part of our economic plan is that everyone makes a fair contribution.

“We’ve already done a lot to crack down on those who don’t pay their taxes, now we’re introducing a new criminal offence for people who hide their money offshore.

“And the message is very simple – if you’re hiding your money offshore, we are coming to get you and the criminal law is going to come and find you.”

One tax specialist described the plans as “horrifying”, saying that people should not be put in prison unless intent can be proven.

Regardless of the morality of the new rules, they should prove effective in encouraging anyone with offshore taxable income to fully declare this to HMRC and perhaps follow a more ‘vanilla’ approach to tax planning in the future.

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