Anyone who owns or has an interest in assets held offshore or has had a source of income that is offshore, or has moved income or the proceeds of capital gains offshore is potentially affected.
The RTC is concerned with income tax, capital gains tax (but not non-resident capital gains tax payable by companies) and inheritance tax and only offshore tax non-compliance which was committed before 6 April 2017 (16 November 2017 for inheritance tax).
There is a window of opportunity to correct any issues with offshore tax non-compliance before 30 September 2018.
After that time, HMRC intends to use the information provided under the Automatic Exchange of Information agreements to identify non-compliance involving offshore matters or transfers. If a taxpayer is caught after 30 September 2018, they face the higher penalties and criminal sanctions.
Taxpayers who do not correct on or before 30 September 2018 face 'failure to correct' penalties. The standard penalty for failure to correct is a maximum of 200% and a minimum of 100% of the 'potential lost revenue' attributable to the offshore non-compliance.
The amount of the penalty can be reduced to a minimum of 100% of potential lost revenue where disclosure of relevant matters is made to HMRC. The reduction given will depend on the timing, nature and extent of the disclosure.
There is a further additional penalty of up to 10% of the assets connected to the failure to correct where the tax involved exceeds £25,000 and the taxpayer is aware of the non-compliance but fails to correct it.
Liability to a penalty does not arise if the taxpayer can satisfy HMRC that there is a reasonable excuse for the failure.
The RTC rules specify that a taxpayer cannot claim to have a reasonable excuse merely because the taxpayer relied on advice that subsequently turned out to be wrong.
In particular, reliance on advice does not provide a reasonable excuse in circumstances where:
Advice that cannot be relied on because of these rules is referred to as 'disqualified'. Advice will not be disqualified if a taxpayer takes reasonable steps to ascertain whether advice is disqualified and reasonably concludes that it is not.
The retrospective application of the penalty rules under the RTC should be considered a high risk for any taxpayer who has undertaken offshore tax planning, particularly if the taxpayer may have undeclared UK tax liabilities that involve offshore matters or transfers.
In advance of 30 September 2018, steps should be taken to review the exposure to a penalty and, if necessary, a correction should be made before the new penalties come into force on 1 October 2018.
Reliance on competent advice addressed to the taxpayer's needs should ensure that the taxpayer has a reasonable excuse. In many cases, it may be sensible to obtain a second opinion although care will need to be taken to ensure that the advice is not disqualified. We will be happy to discuss this point further.
Our international private wealth team responds to some key questions that our clients from across a number of sectors and jurisdictions have been thinking about over the past couple of weeks.