HMRC now tells us it has details of 500,000 people in the UK who have money stashed abroad. Much of it is being hidden from the tax-man and therefore is a ticking time-bomb.
That works out at 1 person in every 100. That means that we likely each know 3 or 4 people who have money hidden offshore. Now of course you will not know which of your relatives and friends these are. After all only a fool boasts about his tax-fiddling!
The myth HMRC is trying to bust is that these are all rich people. Or that these are sophisticated offshore investments.
These 500,000 people include all sections of society. Often they will be people who used to be in business, or who came into a bit of money. Maybe someone died and left you some money.
Back in the 1980s it was quite routine for the managers in high street banks to offer to put your savings offshore. They could get you a high interest rate and the tax-man needn’t know...or so they told you! Banks have long since learned, to their cost, that this is bad and dangerous advice.
Nevertheless loads of people still have money offshore – much of it sitting there for 20 or 30 years. They see it as a burden because they are scared to touch it.
Now there is a way out. You can tidy things up and not have to worry about the tax when the money first went offshore. This is because HMRC can only go back 20 years.
EXAMPLE: Let’s assume you put £30,000 of undeclared income into an account in the Isle of Man in 1985. Since then it has been earning interest, you have retired, but you are scared to touch the money and open a can of worms. The first thing to say is that the tax-man cannot tax you on the initial £30,000. It’s too old. All he can do is get you to pay up for the past 20 years. This means working out the tax you should have paid on the interest. Add to that a penalty for confessing late, and interest because you are paying the tax late. That is what you will owe HMRC. It might still be a tidy sum, but since you have got away with the original investment, and the interest in the 1980s, the overall bill has been cut down.
Once you start the process of declaring this to HMRC then you can bring the money back to your normal bank account. Wait until you have paid what you owe to HMRC and then you can spend the rest with a cleared conscience.
Remember HMRC charges lower penalties to people who some forward before HMRC gets to them.
So if you know someone who has money offshore, but hasn’t told you, who might they be?
My experience says most people with an account offshore yet to be declared are:
- Aged 55 plus
- In business, or were in business.
- Savers who put the money away in the 1980s
- Sitting on the money, unsure what to do.
- Scared of the brown envelope from HMRC or, worse,
- Fearing a knock on the door from the tax-man.
If they think they have worries now, just imagine the mess if they die with this money offshore. Their executors will be legally obliged to declare it to HMRC before the estate can be distributed and cleared up. This will mean a full tax investigation going back 20 years (dying doesn’t get you off!) You won’t be around to explain what went on or where the money moved to and from. So HMRC may get even more money than if you come clean now.
Do the right thing, and speak to a tax specialist today about clearing this up.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.