From this month HMRC will be focussing on those who are deliberately evading tax through trusts that are formed under the laws of an offshore jurisdiction, such as those that operate in Switzerland, Liechtenstein or the Isle of Man.
However, advisers are warning that those with overseas trusts who have not been keeping up with the changes in tax rules may also face penalties or even a jail sentence.
Prior to 1991, it was possible for domicile and non-domicile UK residents to use offshore trusts and not pay capital gains tax, and for individuals of a certain wealth it was standard planning.
In 1991 those rules changed to stop UK domiciles using offshore accounts and in 1998 these rules were extended to non-domiciles.
Since 2008 the laws tightened further, demanding UK non doms need to pay a fee of between £30,000 and £50,000 a year for the privilege of an offshore trust and as soon as the money came into the UK it would be subject to capital gains tax.
Gary Heynes, Private Client Group Partner, Baker Tilly pointed out that this succession in law has meant that something that was once viewed as a straightforward asset protection exercise ten years ago may now be regarded as evasion now by HMRC.
“We do see clients who have been caught in this trap of not keeping up with the pace of tax legislation and now that the Revenue is making this its main focus it’s more important than ever to keep up to date."
Baker Tilly estimates that the number of people paying a fee to keep an off shore fund is in the region of 5,000.
Heynes advises anyone who thinks that they may owe tax on offshore trusts to come forward sooner rather than later.
“Get to the Revenue first before they come after you. You can make a voluntary disclosure which will limit penalties. Disclosure agreements may also work for trust owners – the Liechtenstein disclosure facility, for example, limits trusts going back more than ten years and limits the impact of prosecution.”
