If you own a holiday home and have forgotten to declare income earned from the property, the time is ripe to get in touch with HM Revenue and Customs (HMRC).
UK residents who own assets offshore or earn part of their income abroad have until 30 September 2018 to declare any unpaid tax – otherwise they will face a minimum penalty of double the tax owed.
Under the ‘Requirement to Correct’ (RTC) rules, UK taxpayers must notify HMRC about any offshore tax liabilities relating to income, capital gains or inheritance tax.
If they do so before the end of September, tax and interest will be applied in line with existing penalty rules. Once they notify HMRC, they have 90 days to pay any tax owed.
If an individual has undeclared offshore tax after this date, they will face a minimum penalty of 100% of the tax charge (effectively double the tax bill). If the tax involved exceeds £25,000 in any tax year and the individual is found to have been aware that they were breaking the rules, they could also face a penalty of up to 10% of the value of assets.
Renting out a property abroad, transferring income and assets from one country to another, or even renting out a UK property while living abroad are scenarios covered by the rules.
HMRC advises anyone with overseas assets or income to check their tax returns and seek professional advice from a tax adviser if necessary. The period under review spans from 1998 to 6 April 2017.
From 1 October, HMRC will have new powers to track down an UK taxpayer’s financial information in more than 100 countries. This will make it easier for them to detect any unpaid tax.
So far, more than 17,000 people have notified HMRC about unpaid tax earned on foreign income. For example, from overseas properties.
Airbnb owners in firing line
Russell Dickie, tax planning specialist at accountancy firm Menzies, suggests Airbnb property owners face the prospect of hefty penalties.
“Even if a UK resident has been renting out an overseas property for just a few weeks a year, these earnings must be disclosed to HMRC each year.
“If this has not been done properly in the past, then a penalty will be applied to the total amount of tax due, which could add up to a significant lump sum,” he says.
As well as holiday homes, offshore assets include timeshares, savings accounts, life assurance policies, pensions, stocks and shares accounts, art and antiques, boats, cash and jewellery.
Offshore trusts that are used to pass on money to loved ones are also covered by the rules. For example, bare trusts, interest in possession trusts, discretionary trusts and accumulation trusts.
Likewise, income earned on trusts that are used to provide benefits for employees of a company or those who are self-employed should also be declared. These include employee benefit trusts and self-employed persons trusts.
Too little too late?
Fiona Fernie, a dispute resolution partner at accoutant Blick Rothenberg, believes HMRC should have done more to publicise the RTC rules and deadline.
"Whilst those of us in the profession are very familiar with the terms of the RTC legislation, to date there has not been a huge amount of wide-spread ‘advertising’ of the new legislation," she says.
UK residents who could be affected by the rules have received 'nudge letters' from HMRC, but Ms Fernie notes that these were only sent out in recent weeks – at the height of holiday period.
She adds: "By the time taxpayers return from vacation and realise that they may have an issue, there may not be enough time left to carry out the necessary review and make a disclosure to HMRC before the deadline."