Posted by Tax Innovations on 04 Nov 2011

HMRC Targets Foreign Property Owners

HM Revenue and Customs (HMRC) are targeting taxpayers who have overseas holiday homes and offshore investment properties as part of the ‘HMRC Affluent Team’ initiative.

HMRC Affluent Team

The ‘HMRC Affluent Team’ was created to target the avoidance and evasion of tax by wealthy individuals and those owning land and property abroad are the first group to be targeted.

HMRC claim that by using sophisticated data sourcing techniques and risk assessment tools they are able to find individuals who own overseas property but do not appear to be financially able to do so, based on declared levels of self assessed income.  They will also be looking to highlight those whom are not declaring income and gains from oversea property.

David Gauke, Exchequer Secretary to the Treasury said:

” The Government is committed to tackling tax evasion and avoidance across all areas of the economy.  That is why we allocated HMRC £917m to reduce the tax gap over the next four years in the last Spending Review. This new team is part of that investment.”

Tax Evasion

Whilst the announcement is not unexpected, it is worth considering the language used in more detail.  Tax evasion is the act of illegally evading tax and in essence does what it says on the tin. Tax avoidance is a different beast altogether and not so easily defined.

Tax Avoidance

Tax avoidance is normally the term given to those who legally organise their financial and business affairs to be tax efficient. In some cases of tax avoidance this is achieved by complex exploitation of loopholes in the law and unclear definitions of legislation.  This type of tax avoidance is easily identifiable by HMRC and the offending legislation is normally quickly changed to remove any margin of error or misinterpretation.

Tax avoidance is also the name (unfairly!) given to efficient tax planning using clear and legal structures that do not rely on exploitation or misdirect ion. Any due personal and business taxes are paid at the correct thresholds, but planning takes place to minimise the liabilities as far as possible.

Some of this planning well involve simple steps, such as making use of registered pension contributions or making “Potentially Exempt Transfers” for Inheritance Tax planning purposes. More complex planning may involve the perfectly legitimate use of offshore trusts or companies.

Returning to the earlier point regarding the definition of tax avoidance, one hopes that this HMRC initiative will be successful in finding those that seek to evade tax by using nefarious or exploitative means.  However, those that use the correct channels and for the correct purposes will continue to reap the benefits of good tax planning.

Contact Tax Innovations about Foreign Property

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