Worldwide disclosure facility

Published: 07 Feb 2021

Updated: 16 Oct 2023

Written by Ray Coman

HM Revenue and Customs have been issuing letters titled “Your overseas assets, income or gains.”  In the letter, HMRC explain that they have information indication that the taxpayer has received overseas income or gains on which a UK tax liability could be due.  HMRC cite reciprocal agreement with other countries as the source of this information.  This report guides through the tax implications and likely outcomes of the responses given.

How to respond to HMRC

Income and gain correctly declared

Income and gains covered by allowances

Gains are not liable to tax

Requirement to correct

Failure to notify

Inaccuracy

Rate of penalty to apply

Summary table

Reasonable excuse

Domicile

Let property campaign

Coman & Co service

How to respond to HMRC

A certificate is enclosed with the letter.  The certificate provide four options:

• To bring tax affairs up to date using HMRC's Worldwide Disclosure Facility; or
• A statement that all my overseas income and/or gains have been correctly declared on a Tax Return; or
• A statement that income and/or gains do not need to be declared as they are covered by the personal allowance; or
• A statement that a declaration was not necessary because gains were not liable to UK tax.

Income and gain correctly declared

Simply because HMRC have sent a letter does not mean that there is tax to pay.  HMRC give the example of overseas income which is part of an investment portfolio.  For instance, a taxpayer could open a fund with an asset manager which is partly invested overseas.  In that case, the second option is applicable.  The response should detail the boxes on the Tax Return in which the overseas income or gain was included.

Income and gains covered by allowances

It is not necessary to report gains which are below the annual exemption, income below the personal allowance, dividend less than the dividend allowance and interest under the savings allowance.  It is beyond the scope of this report to detail the exemptions.

A review of past tax years could uncover tax relief on pension contribution, tax reducer on EIS investment, or some other unclaimed tax relief.  In that case a full disclosure could result in a net repayment.  Where that applies, a Tax Return should be filed disclosing all income and with an explanation about the net overpayment.  Amounts previously overpaid via PAYE should be adjusted for in the updated Return.

Gains are not liable to tax

A person’s home is not liable to capital gains tax.  It is not necessary that the property is situated in the UK to be exempt.  However, a UK tax resident would be relying on a deemed period of occupation to satisfy that requirement.  The rules are covered elsewhere on this website.  While bank balances can yield interest, it is not possible to make a gain on cash.

For the first seven years of UK residency it is possible to claim the remittance basis as a non-domiciled individual.  Remittance basis users will lose entitlement to the personal allowance and capital gains tax exemption.

Requirement to correct

This section should be read for tax years 2012-13 to 2015-16 inclusive.

On 5 September 2016, HMRC launched a Worldwide Disclosure Facility giving taxpayers until 30 September 2018 to report previously undisclosed offshore income and gains.  The opportunity labelled Requirement to Correct (RTC) offered taxpayer who came forward a lower rate of penalty.

Those disclosing income for the years up to 2015-16 will be subject to harsh penalty equal to 150% of tax owed on undisclosed income.  This is known by HMRC as a Failure to Correct penalty.  The penalty which is published in the HMRC factsheet “Penalties for offshore non-compliance” applies to taxpayers “non-compliant during the tax year 2015 to 2016 and any earlier tax years."

Offshore income before 2012-13

The HMRC factsheet “Penalties for offshore non-compliance” applies to inaccuracies from 6 April 2011 and failures to notify from 6 April 2012.  Penalty rates for the tax years not covered by requirement to correct (i.e. 2012/13 or 2011/12 to 2015/16 inclusive) are explained below.

Failure to notify

As explained above, a UK taxpayer is liable to tax on worldwide income and gains.  These gains would be reported on a Tax Return.  Therefore, if a taxpayer has not filed a Tax Return for a year in which overseas income and gains should have been reported, a failure to notify has occurred.

Inaccuracy

Where a Tax Return was filed for a year in which offshore income or gains were not disclosure, the taxpayer will be recorded as self-assessment for that year.  Therefore, the error would be treated as an omission and in that sense an inaccuracy.  This is fortuitous for taxpayers who are self-employed or landlords and already filing Returns.

Rate of penalty to apply

A disclosure will be prompted where it is made after the issuance of the letter from HMRC entitled: “Your overseas assets, income or gains.”  The worldwide disclosure requires the responded (or any agent appointed by the respondent) to self-assess the penalty.  The lowest rate of penalty applies for errors or failures to notify which are made as the result of carelessness. A higher penalty applies for a deliberate error.  For the purpose of this report, the rates below are the lowest applicable, i.e. those resulting for failure to take reasonable care.

A prompted disclosure which results in tax due caused by a careless inaccuracy will result in a penalty of 15%.

A prompted disclosure caused by failure to notify will lead to a penalty of 20%.

For failure to notify only, a lower penalty applies if the tax has been unpaid for less than 12 months.   For example, the payment deadline for 2020/21 was 31 January 2021. Therefore, the lower penalty of 10% would apply to the 2019/20 tax year until 31 January 2022.

A tax year for which the filing deadline has not passed will not be reported via the worldwide disclosure facility.  It can take a while for the HMRC form to update and therefore if a recently passed tax year is not included in the standard form, this should also be reported via Tax Return.  A late filing and late payment penalty could apply to that year instead of the failure to notify or inaccuracy penalty.

If HMRC discover that the original disclosure was insufficient, it is likely that HMRC will determine a deliberate withholding of information.  In that instance a higher rate of penalty applies.

Summary table

This table applies for a taxpayer who is prompt and co-operative with HMRC in replying to letter prompting disclosure of worldwide income.   

Failure to notify.  This table applies if a Tax Return was not filed for the respective tax year.  For instance, because the taxpayer was on PAYE.

Inaccuracy.  The following penalties apply where a Tax Return was originally filed:

Reasonable excuse

It would only be possible to use reliance on professional advice as a reasonable excuse for failing to disclose subject to certain strict conditions.  The conditions are that the adviser did not have a vested interest in omitting the advice and that adviser lacked the expertise required to advise on the tax disclosure.  An appeal would be hard to win given the powers hand to HMRC and therefore strong evidence would be required to 'disagree with a tax decision' resulting from worldwide income disclosure.

Domicile

For a non-domiciled individual, £2,000 of unremitted income and gains per tax year are exempt from tax.  This could help spare many non-doms the trouble of reporting worldwide income where profits are below the reporting threshold.  The exemption will not help non-domiciled taxpayers with income over £2,000 per annum, as it is an ‘all or nothing’ exemption.  Nevertheless, for the first 7 years of UK residency, non-domiciled individuals can claim a remittance basis.  Remittance basis users lose their personal allowance, however for those with income over the threshold at which personal allowance is fully abated -of roughly £125,000 per annum- loss of personal allowance would not give rise to a tax liability.  Special rules applicable to non-domiciled people are often pertinent in cases of worldwide disclosure.

Let property campaign

Technically an overseas landlord can make a disclosure via the Let Property Campaign or via the WorldWide Disclosure Facility.  The Let Porperty Campaign is more favourable than the Worldwide disclosure faciity, as requirement to correct penalties (applicable 2012-13 to 2015-16) would not apply.  Notwithstanding, the  "Your overseas assets, income or gains" letter from HMRC includes a statement which the recipient is required to select "I need to bring my tax affairs up to date. I will declare all my outstanding UK tax using HMRC's Worldwide Disclosure Facility."  The signed statement is therefore a commitment to using a specific mode of disclosure.  Let Property Campaign is only available to landlords making a voluntary disclosure and not those in receipt of the 'nudge' letter from HMRC.

Coman & Co service

Having operated since 2009, we have expertise about the nuances of tax regulation in past years.  We are therefore well placed to ensure all available tax relief and exemption is applied to result in minimal liability.  Having prepared numerous worldwide disclosure declarations, we will ensure that the work is done properly reducing correction and correspondence with HMRC.  Our rates our competitive and we can be flexible on pricing where calculations are required for several years.  We are an authorised agent, meaning that we communicate with HMRC on behalf our client and in our client’s best interest.