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Penalties and fines for undisclosed foreign income

Overview

If you are resident in the UK and you get foreign income or capital gains you must declare them on your UK tax return. This applies even if you never bring the income or gain into the UK.  Penalties can be up to 200% of unpaid tax and HMRC can ask you to go back 20 years – so its important to get this right.

Foreign income needs to be included on your UK tax return 

The general rule is that if you are a UK resident and you get income from abroad then you must fill in a Self-Assessment Income Tax return. If it is your first tax return, you need to register by 5 October. This applies even if you don’t bring the income into the UK and / (or) if you pay overseas tax on the income. This catches a lot of people out.

Foreign rental income

Imagine the following – you live in the UK and have a job in the UK, but you also have an Italian property that is rented out. You pay Italian tax on this property and don’t bring any of the rent into the UK. In this case you still need to tell HMRC and do a UK tax return. If you don’t bring the rental income into the UK you can elect to use the Remittance Basis, which means you don’t need to include the unremitted income in your tax return. But you still need to do a UK Income tax return and tick the right box.

Who needs to complete a UK tax return?

You can check if you need to do a UK tax return by clicking here.

Avoiding double taxation

In most cases, if you’ve paid tax abroad this will reduce your UK tax bill. But you need to show the overseas tax paid in your UK tax return. You can’t just assume that HMRC will let you off because you’ve paid tax.

Countries share information 

HMRC and other countries now share information. HMRC sends out lots of letters each year saying that they believe there is undisclosed income. So, if you have undeclared income, you will probably receive a letter from HMRC. The letter will offer you the option of taking advantage of a scheme called the Worldwide Disclosure Facility’

Worldwide Disclosure Facility

The Worldwide Disclosure Facility is an electronic procedure, that allows UK residents to declare foreign income that they have not previously disclosed.  

Penalties

The penalties for not disclosing overseas income can be really high – up to 200% of the tax due. And HMRC can ask you to go back up to 20 years! Plus there is interest. So its really important to get this right. You can read about penalties here.

In summary, the number of years you will need to disclose will depend on various factors, including: if there is unpaid tax; and the reason for the non-disclosure. The table below illustrates the earliest tax-year (that applies in some cases) for which disclosure may be required if tax returns have been submitted, but there is unpaid tax.

Reason for non-disclosureEarliest tax year for which disclosure may be required
Reasonable excuse5th April 2014
Careless behavior5th April 2012
Deliberate5th April 1998

If tax returns have not been submitted disclosure often needs to be made up to 5th April 1998. You can read more about the periods here.

If you need help – Contact us 

Overview If you are resident in the UK and you get foreign income or capital gains you must declare them on your UK tax return. This applies even if you never bring the income or gain into the UK.  Penalties can be up to 200% of unpaid tax and HMRC can ask you to go […]

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