By Gavin Scott
The Isle of Man has agreed to automatically exchange information with the UK on tax matters. The agreement is backed by a form of tax amnesty to allow UK taxpayers to regularise their affairs if necessary.
The agreement was initialled on February 19, following three months of intensive negotiations. An HM Revenue & Customs (HMRC) statement explains that it forms an integral part of the government’s offshore anti-evasion strategy which will be published later this year.
The Isle of Man is trying to shake off its ‘tax haven’ reputation. However it still remains on some countries’ blacklists, as is the case here in Portugal. This has consequences for taxpayers with assets in the territory.
The Portuguese government has an official list of countries and territories that provide a more favourable tax regime. While many of the countries on this list are not surprising, many British expatriates do not expect to find the Isle of Man, Channel Islands and Gibraltar blacklisted as well.
Income and gains derived from assets held in any of the blacklisted territories are taxed at a penal rate of 35%.
Owning assets in the Isle of Man or Channel Islands is, therefore, not the most tax efficient way of holding your capital. You should ask an experienced wealth management firm like Blevins Franks to review your current holdings and recommend tax efficient ways to own investment assets.
With regards to the Isle of Man’s new agreement with the UK when it comes into force, expected to be in January 2014, Manx financial institutions will provide a broad range of information on bank accounts and other financial assets owned by UK taxpayers. This will be automatically shared with the UK tax authorities by their Isle of Man counterparts. The fine detail still needs to be confirmed, particularly in the case of non-domiciled UK taxpayers who will not be subject to the same reporting regime as other UK taxpayers.
As part of the arrangement, HMRC will offer a special disclosure opportunity for UK taxpayers with undeclared assets in the Isle of Man. More details will be released soon, but we do have the key facts.
• It will start on April 6 2013 and end in September 2016.
• Taxpayers must fully disclose all tax liabilities arising from April 1999 onwards.
• Penalties will be reduced to 10% of the tax due for liabilities that should have been declared prior to April 2009, and 20% for those after.
• Obviously, all due tax will have to paid.
• Anyone already under an HMRC enquiry or who has been previously investigated is excluded from this opportunity.
• There is no guarantee of immunity from criminal penalties and HMRC’s usual criminal investigation policy will apply.
HMRC has said it will seek high penalties against those who do not disclose their assets and regularise their tax affairs – penalties could potentially be as high as 200% of the unpaid tax.
UK Chancellor, George Osborne, said that the agreement builds on the groundbreaking work the government has already carried out. He said it is “committed to tackling tax evasion and this agreement will greatly enhance HMRC’s ability to clamp down on those who try to hide their money offshore”.
It follows tax deals made with Switzerland and Liechtenstein and, although they work differently, the aim is always to boost tax receipts at minimal cost to the UK by encouraging people to come forward voluntarily.
This new UK/Isle of Man deal is modelled on the US Foreign Account Tax Compliance Act (FATCA) agreements. This is intended to crack down on US citizens who hide money in offshore accounts and ensure all tax is paid on income generated from overseas assets.
Although this is very unpopular with both clients and financial institutions, experts have been warning that other countries are likely to consider similar measures.
Mr. Osborne confirmed that the UK was already in discussions with Jersey and Guernsey as part of their common commitment to combat tax evasion. At the end of February, the Jersey government asked the jurisdiction’s finance industry to consult on the possibility of entering a similar agreement with the UK.
Jersey Finance, the industry’s representative body, is encouraging the Jersey government to continue requesting the UK to promote automatic exchange of information worldwide, on a level playing field basis.
HMRC has said that tax transparency will be a focus of the UK’s G8 presidency, where it will look to further promote automatic exchange of information.
The Chief Minister of the Isle of Man, Allan Bell, believes that automatic exchange of information is likely to become the “international standard” and said that territories “that try to swim against the tide of international change and sentiment run the risk of being labelled as a tax haven”.
Wherever you live, your tax planning should always be fully compliant with the local tax law. For advice on the legitimate opportunities to lower your tax liabilities here in Portugal, contact an experienced advisory firm like Blevins Franks which specialises in tax planning for British expatriates in Portugal.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
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Gavin Scott, Senior Partner of Blevins Franks. Gavin has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers.
To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com
