As HM Revenue & Customs’ (HMRC) contentious power to force the upfront payment of tax received Royal Assent, at least one tax expert who spoke to International Adviser said it was not inconceivable that HMRC could turn its attention to offshore bonds.
Ray McCann, partner (non-lawyer) at Pinsent Masons, said HMRC was allowing anxieties to “swell up” over how far it would go, adding that it was possible the body could eventually target offshore bonds.
“HMRC is by far the most aggressive of all the previous tax authorities in the UK and I can imagine it becoming harsher,” he said. “You can picture a situation where it needs cash and starts to look at whether the tax advantages offered by offshore bonds are justified.
“It could get to the point where you have committed a criminal offence by not declaring your entire offshore income.”
He said that, while it would be difficult for the Government to target ISAs because of their reputation as the “normal persons tax planning”, offshore bonds were disadvantaged by their association with the wealthy.
"Criminal offence"
However, Neil Chadwick, technical manager at RL360, said the new power, which allows HMRC to use previous rulings as a basis for forcing tax payments in similar cases, is unlikely to affect the offshore bond market because it is not “engineered” towards a tax efficient outcome.
“UK tax legislation is clear and comprehensive in how, when and if offshore bonds are taxed.”
He said offshore bonds offer deferral rather than avoidance, adding that it was “difficult” to see how they could be more transparent.
“Yes, offshore bonds have been used in elaborate tax avoidance schemes in the past, but it’s the schemes themselves that are problematic for HMRC, not the underlying assets that they may or may not invest in.”
Similarly, tax and estate planning consultant at Canada Life, Paul Thompson, said he did not believe offshore bonds would be scrutinised in the same way as avoidance schemes.
“I really cannot see offshore bonds being on HMRC’s radar at all. They do not avoid paying tax, they defer it; the approach is not aggressive.”
'Name and shame'
He added that he did not feel the public’s view of the offshore bond market would be influenced by the body’s “name and shame” approach.
“ISAs are a tax saving device, and the general public does not have an issue with them, so why would they have an issue with offshore bonds?” he said.
However, he added that while HMRC had not yet abused its powers, he could not guarantee that this would continue into the future.
Likewise, Neal Todd, partner at law firm Berwin Leighton Paisner, said HMRC’s new powers have created a potentially “dangerous situation”, adding that it was vital the tax system remained “rooted in fact” rather than conjecture on the part of HMRC”.
