The risk of miscalculating Inheritance Tax due to HMRC

The Telegraph reported that ordinary individuals inheriting assets from overseas could risk criminal charges if they miscalculate the tax owed. New legislation was introduced in 2016 which meant that beneficiaries who inherit offshore money could see their income wiped out completely due to new penalties and punishments. The clampdown is part of HMRC’s latest attempt to close a ‘tax gap’ reported to be worth £34bn per year.

A loophole in the law meant that anyone owing UK tax for income earned abroad could come forward without fear of criminal charges or paying punitive penalties. However, the so-called ‘Liechtenstein Disclosure Facility’ (LDF) ended on December 31st, 2015 and meant that HMRC could impose penalties of at least 30% of the tax due and could investigate cases going back 20 years, in contrast to the current limit of 16 years.

In addition, the larger financial sanctions will be compounded by the fact that anyone miscalculating overseas taxes could be branded as a criminal. This position was confirmed in the Chancellor’s last Autumn Statement. “This won’t just affect serial evaders but ordinary people who make a mistake with their tax or bury their heads in the sand”, said John Cassidy, a tax investigations partner at Crowe Clarke Whitehall. “After the amnesty ends HMRC will become more vigilant and less sympathetic.”

It is reported that tens of thousands of Britons underpay tax on offshore assets each year. However, this is often due to a lack of understanding, as in the case of a 92 year old woman who discovered that the Swiss bank account she inherited from her late husband was liable for back taxes. As she was a joint holder of the account, she would be branded a criminal under the new laws. Dealing with the tax implications of an estate can be a complicated process even if overseas assets aren’t involved. Many people think that they have enough knowledge and experience to deal with the estate but often end up requiring professional assistance at some stage in the process. Executors are financially and legally responsible for the distributions that are made, so you must be 100% confident that you know what needs to be done; otherwise there could be a nasty shock waiting after the estate has been distributed.

If you would like to meet with one of our Consultants to discuss any of the issues raised in this article or any other Estate Planning topic please telephone 01732 868190 or click here.

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