Recent proposals by the HMRC mean that tax evaders who don’t declare offshore assets can face penalties up to three times the amount of tax they try to evade, with increased risk of criminal charges.
Starting from October 2016, HM Revenue & Customs (HMRC) will receive data on those UK individuals with offshore accounts in the Crown Dependencies and Overseas Territories. This precedes the implementation of the OECD’s Common Reporting Standards that will take force in 2017, introducing the automatic exchange of information between participating countries.
HRMC will also open its Worldwide Disclosure Facility in September 2016 – allowing those with outstanding taxes to pay to sort their issues but offering no special terms. The previously existing disclosure facilities, including the Liechtenstein Disclosure Facility and the Crown Dependency Disclosure Facilities, closed at the end of 2015 to be replaced with the tougher regime.
The tightened regulation will increase pressure on those HNW individuals who have undeclared offshore assets. According to our HNW Offshore Investment: Drivers and Motivations report, tax efficiency is the key driver for UK HNW individuals, with 55.4% of wealth invested offshore for tax reasons – a contrast to the 23.2% average of global HNW wealth invested for the same reason. According to our report, tax efficiency tends to be one of the main drivers of offshore investment in countries with high taxation. Of the countries included in our report, the UK ranks second as measured by the proportion of total HNW wealth invested offshore to achieve tax efficiencies.
However, looking forward the automatic sharing of information means that the nature of offshore investments will change. Some investors are likely to repatriate some of their wealth, but investors’ reasons for holding wealth onshore are also likely to change, depending on the booking center choices they make.
Those offshore centers whose selling point is purely tax avoidance would do better to reposition themselves to offer a broader range of services.
By Katri Tuomainen, Wealth Management Analyst