The revelations in early April about offshore companies and investment funds based in Panama have turned the spotlight on tax avoidance and evasion, as well as secret financial dealings in general. We can be sure that HM Revenue & Customs (HMRC) and other regulatory authorities will be scrutinising the data carefully.
There are several reasons why people hold funds offshore and it is not illegal to do so. You might hold one or more foreign currency bank accounts offshore because you have business or a property abroad. Offshore banking might make managing your affairs simpler or help protect you from exchange rate fluctuations.
An investment in an offshore life assurance bond makes sense for some people. Typically, the bond is registered in a jurisdiction with a favourable tax regime. Although potentially higher tax could arise when an offshore bond is cashed in, compared with an onshore bond, the investor might have retired abroad by then and might no longer be subject to UK tax, or might be only a basic rate taxpayer.
What is essential is that all income and gains are fully declared. A strategy that relies on HMRC not finding out is not legitimate tax planning but tax evasion. It’s illegal and the penalties are high – up to 200% of the tax due. The penalties are lower if a person makes a voluntary disclosure to HMRC rather than waiting for HMRC to catch up with them.
A political issue
For political leaders caught up in the allegations, a desire to limit reputational damage has led some politicians to publish their personal tax returns. The right to privacy of personal financial details, such as salaries, has long been protected in the UK, but that could change. In Norway, Sweden and Finland, everyone’s income and tax details are published every year and are available online.
The UK might not go that far, but anonymity can no longer be guaranteed. No security barriers are 100% effective and there is growing international cooperation and information sharing to identify tax compliance risks and agree collaborative action.
Even if the UK does not go as far as the Scandinavian countries, calls for greater transparency might result in new disclosure requirements for trusts or share ownership. In the long run there might be no hiding place. If you are not sure of your tax position, we can help you.