Governments cash in on offshore tax evasion crackdown
The UK tax office has reaped the rewards of its latest measures to tackle tax fraud. The past tax year netted HM Revenue & Customs (HMRC) £29 billion from tax evasion investigations, helping boost its overall revenue by 7%.
HMRC puts part of this success down to using their “full powers” to uncover secret offshore accounts. Over £2 billion was collected by “cracking down on people who think they can hide money offshore” they said, adding, “there are no safe havens”.
For those living in for owning assets in France – who are likely to have financial interests overseas and need cross-border tax planning – this heightened scrutiny is an extra incentive to get your tax affairs in order.
The new cross-country transparency
One of HMRC’s methods for uncovering global tax evasion was co-operation from overseas tax authorities. Over five years it has nearly doubled its requests to foreign governments for information on offshore accounts – totalling 1,096 in 2016.
International data sharing is about to get easier with the new ‘automatic exchange of information’ regime. Last year, over 50 countries – including France and the UK, started collecting information on their taxpayers’ assets and income. By September, this data will automatically flow between these countries, enabling local tax offices to verify whether taxpayers have made accurate declarations on their tax returns. In 2018, another 50 countries, including Switzerland and Monaco, will do the same.
They will have access to contact details and information about accounts and investment income earned over the year, such as interest, dividends, income from certain insurance contracts and annuities. Account balances are also reported, as are gross proceeds from the sale of financial assets.
So if you live in France and have assets elsewhere – whether they are investments in the Isle of Man, Swiss bank accounts or just UK property or pension funds – your local tax authorities will know about them. Even if they have no reason to question your tax situation, they will automatically receive information on your overseas accounts, structures, trusts and investments.
Should you be worried?
These measures are designed to catch out those who are deliberately committing tax fraud or incorrectly declaring themselves and their income and assets. There should be little to worry about if your tax planning is in order and you are declaring your finances correctly.
However, if you live in France and have assets or receive income abroad, or if you live in the UK but earn money from assets in France, it may be hard to determine what you should be declaring and where tax is due.
If you are tax resident in France, you are liable to French tax on your worldwide income, gains and wealth. This includes most income that is also taxed elsewhere.
In any case, cross-border taxation is complex; getting it wrong may be easier than you think and could result in costly fines and even prosecution. Take extra care to make sure your tax planning is above board and legitimately protects your wealth and income.
Careful tax planning
The first thing you need to do is make sure your arrangements are fully compliant in France and the UK and anywhere else you have income, assets or heirs.
Second, your tax planning should suit your particular aims and circumstances, and work beneficially in both France and the UK. A mistake many British expatriates make, for example, is assuming ISAs remain tax-efficient – once you are no longer UK resident, they lose their tax-free status and the interest is usually taxable overseas. On the other hand, tax-efficient investment wrappers offered through a French-compliant bond could legitimately reduce tax on savings and investments. While some structures can seem similar, however, their tax benefits can vary significantly so explore your options.
Finally, make sure you are declaring your finances and taxes correctly in each country. Some British expatriates wrongly believe that if income is taxable in the UK – like rental income, pensions and ISAs – they do not have to declare it in France. Even if you declare income and pay tax in the UK, you may still need to report it here. It is your responsibility to regularly check you have declared all your tax liabilities and bring your tax affairs up to date if necessary. If you have not been following the rules correctly, you should rectify your position as soon as possible.
With today’s scrutiny of tax evasion, it is more important than ever to take time over your financial planning. While France can be a very tax-efficient place to live for expatriates, you need specialist, up-to-date knowledge of local, UK and international tax regimes to achieve the best results. An adviser with cross-border expertise can help you enjoy favourable tax treatment while offering peace of mind that you are meeting your tax obligations, here and in the UK.
All information in this article is based on Blevins Franks’ understanding of legislation and taxation practice at the time of writing; this may change in the future. It should not be construed as providing personalised taxation, investment or pension advice. You should take personalised advice for your circumstances.