Category: Overseas tax issues

HMRC has updated its guidance on how individuals and organisations can apply for a certificate of residence or letter of confirmation to prove UK tax residence.

A certificate of residence can be used to claim tax relief in another country where UK residents pay tax on foreign income. It confirms to the overseas tax authority that the applicant is UK resident. A certificate can be issued where there is a double taxation agreement with the country concerned and the applicant is entitled to treaty benefits.

A letter of confirmation may instead be appropriate where there is no double taxation agreement or proof of UK residence is required for another purpose. The overseas tax authority decides whether relief from foreign tax can be granted.

The online service is available to individuals and sole traders, companies, partnerships, trusts, charities, public bodies, pension schemes and collective investment schemes. Agents can also apply directly on behalf of taxpayers.

Applicants need to provide details including the country the certificate is required for, the relevant double taxation agreement, type of income and period covered. A future date cannot be requested.

Further information is required where a tax return has not yet been filed, including days spent in the UK days during the tax year or years where a certificate is required. 

HMRC has clarified how employers can handle benefits in kind for globally mobile employees as mandatory payrolling is introduced from April 2027.

Under the new rules, most benefits in kind will have to be reported through payroll rather than on annual P11D forms. The first phase, starting on 6 April 2027, covers company cars, vans, fuel and medical benefits. Other benefits will generally follow from 6 April 2028, although loans and employer-provided accommodation are excluded and remain voluntary.

HMRC has now confirmed that employers will be able to choose to exclude globally mobile employees from mandatory payrolling from 6 April 2027. A new online service is expected to be launched in November 2026 for employers to choose this option. Where globally mobile employees are excluded, employers should continue using the existing year-end reporting arrangements, including forms P11D and P11D(b).

The change recognises the additional difficulties employers can face when calculating benefits for employees who work across different countries or move during the tax year. HMRC is expected to publish more detailed guidance on the changes later this year.

Employers with globally mobile employees should review their arrangements ahead of the changes and consider whether excluding these employees from mandatory payrolling would simplify their reporting. If you need help understanding the new rules or reviewing your payrolling arrangements, we can help.

UK taxpayers with income from overseas may not always be aware of the tax rules that apply.  Foreign income is defined as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign. Different rules may apply if you’re eligible for Foreign Income and Gains relief.

Foreign income can include wages from working abroad, overseas dividends and savings interest, rental income from foreign property, and pensions held outside the UK.

Whether UK tax is due depends mainly on your UK residence status. If you are not UK resident, you will not usually pay UK tax on your foreign income. However, UK residents will generally need to pay tax on worldwide income unless a specific exemption or relief applies.

Since 6 April 2025, changes to the rules affecting individuals who previously relied on their overseas domicile status mean that some people may need to review how their foreign income and gains are taxed. Eligible individuals may be able to claim Foreign Income and Gains (FIG) relief, depending on their circumstances.

Foreign income that is taxable in the UK is normally reported through a self-assessment tax return, although some types of income have different rules.

If the same income is taxed in both the UK and another country, you may be able to claim relief to prevent double taxation. In some cases, you may need a certificate of residence from HMRC to confirm your entitlement to relief.

A new rule aimed at preventing individuals from using companies to avoid taxes through the Transfer of Assets Abroad (ToAA) provisions applies to income arising to persons abroad on and after 6 April 2024.

This change affects UK residents who own or have a financial interest in UK resident close companies or non-resident companies that would be close if they were resident in the UK. Affected individuals will have used companies to transfer assets to a separate non-resident person, or to a non-domiciled individual.

The new rule introduces a provision that deems individuals who are participators in a close company, or a non-resident company that would be close if they were UK resident, as transferors to address situations where such companies make transfers. This change ensures that a transfer made via a company, in which the individual is an owner or has a financial interest, will be considered a ‘relevant transfer’ by that individual for the purposes of the ToAA legislation.

This change should not affect genuine commercial transactions or transfers that are not aimed at avoiding tax, as outlined in sections 736 to 742 of the Income Tax Act 2007.

It has been reported by the Chartered Institute of Taxation (CIOT) that HMRC is to launch a new campaign to tackle non-compliance linked to offshore corporates owning UK property. HMRC has conducted a review of non-resident corporate owners of UK property using data from the Land Registry and other sources. This review has helped HMRC identify offshore property owners that may not have fully met their UK tax obligations. 

HMRC is now expected to write to those identified, encouraging them to review their UK tax position and if necessary to make a disclosure to HMRC if any issues are identified. There are two different letters that may be sent. The first, titled ‘Disclosure for Annual Tax on Enveloped Dwellings/Non-Resident Landlord liabilities’ and the second titled ‘Disposal of interest in UK residential property’. Both letters also recommend that the companies should ask connected UK-resident individuals to ensure their personal tax affairs are up to date in respect of the related anti-avoidance provisions. 

There are higher penalties for offshore tax non-compliance. In certain circumstances, these penalties may be reduced. The largest reductions are for unprompted disclosures. The penalty also varies depending on whether the errors are careless, non-deliberate, deliberate or deliberate and concealed.

It should also be noted that a new Register of Overseas Entities was recently launched by Companies House. This register requires overseas entities that own land or property in the UK to declare their beneficial owners and / or managing officers. Overseas entities that already own UK property are required to register with Companies House and provide details of their registrable beneficial owners and / or managing officers by 31 January 2023. This applies to overseas entities who bought property or land on or after 1 January 1999 in England and Wales, 8 December 2014 in Scotland and on or after 1 August 2022 in Northern Ireland. 

Following the end of the Brexit transition period, the process for exporting goods to the EU mirrors the process for all other international destinations.

Businesses, especially those that only trade with EU should by now be aware of the rules and be working accordingly. Businesses can make customs declarations themselves or hire a third party such as a courier, freight forwarder or customs agent to do the paperwork.

HMRC lists the following eight-steps that should be considered when exporting goods:

1. Check if you need to follow this process. The process listed below should be if you're moving goods permanently from: England, Wales or Scotland (Great Britain) to a country outside the UK or from Northern Ireland to a country outside the UK and the EU. There are different rules for goods that move between Great Britain and Northern Ireland or between Northern Ireland and the EU.
2. Check the rules for exporting your goods.
3. Get your business ready to export. This includes ensuring you have an Economic Operator Registration and Identification (EORI) number.
4. Decide who will make export declarations and transport the goods
5. Classify your goods.
6. Prepare the invoice and other documentation for your goods.
7. Get your goods through customs.
8. Keep invoices and records.

There is a special financial support targeted specifically at exporters.  This is in addition to the package of government-backed and guaranteed loans and other measures designed to support businesses coping with the financial effects of Coronavirus (COVID-19).

UK Export Finance (UKEF) is the export credit agency and a ministerial department of the UK government. The UKEF helps UK companies by providing insurance to exporters and guarantees to banks to share the risks of providing export finance. In addition, it can make loans to overseas buyers of goods and services from the UK that can protect UK exporters facing delayed payments or transit restrictions.

At this crucial time, the following help may be available from UKEF:

• If your business is facing disruption due to late payments, UKEF can help ease cash flow constraints by guaranteeing bank loans through its Export Working Capital Scheme
• If you are concerned about getting paid, UKEF offers an export insurance policy that can help you recover the costs of fulfilling an order that is terminated by events outside your control
• UKEF can also support finance for overseas buyers through the Direct Lending Facility scheme, so they can continue to buy your goods and services
• UKEF has over £4 billion of capacity to support UK firms exporting to China, as well as significant capacity across other markets affected by Coronavirus (COVID-19) to help cover these risks.

There are special rules that must be considered when buying and selling assets in foreign currency. This is sometimes known as a barter transaction. As a general rule when a foreign currency transaction takes place at arm’s length, the value of the consideration is the sterling equivalent of the amount paid for the asset at the date of acquisition and / or disposal.

HMRC provides the following explanatory example where US shares are bought for US dollars in a bargain at arm’s length for full consideration:

• the acquisition cost of the shares is the sterling equivalent of the dollars given at the exchange rate in force at the date of acquisition of the shares;
• the consideration for disposal of the dollars is the sterling value of the shares received in exchange.

HMRC supported by case law, will not accept that the gain or loss on an asset acquired and disposed of for foreign currency should itself be computed in foreign currency, and then converted into sterling at the rate ruling at the time of the disposal of the asset. These rules can create unusual scenarios where a profit or loss in a foreign currency transaction due to currency movements, can create a significantly different outcome when the values are converted to sterling.

There are higher penalties for taxpayers evading Income Tax and Capital Gains Tax relating to offshore matters. HMRC’s compliance check notice entitledHigher penalties for offshore matters, has recently been updated to include details about penalties under the Requirement to Correct (RTC) legislation.

The RTC rules apply to any person with undeclared UK Income Tax, Capital Gains Tax and/or Inheritance Tax liability concerning offshore matters or transfers relating to offshore tax non-compliance committed before 6 April 2017 (i.e. up to and including the 2015-16 tax year). With effect from 1 October 2018, any new disclosure relating to this (pre-6 April 2017) period will be subject to the new failure to correct (FTC) penalties. The FTC standard penalty will start at 200% of any tax liability not disclosed under the RTC, and cannot be reduced to less than 100% even with mitigation.

The existing penalty regime for other offshore matters remains as before, and is linked to the tax transparency of the territory in which the income or gain arises. There are three separate categories which correspond to the three penalty levels:

• Where the income or gain arises in a territory in ‘category 1’, the maximum penalty rate is 100% of the tax. These are territories that have agreed to exchange information automatically with the UK.
• Where the income or gain arises in a territory in ‘category 2’, the maximum penalty rate is 150% of the tax. These are territories that have agreed to exchange information with the UK but only when asked.
• Where the income or gain arises in a territory in ‘category 3’, the maximum penalty rate is 200% of the tax. These are territories that have not agreed to exchange information with the UK.

A breakdown of which territory is in which category can be found on the GOV.UK website. In certain circumstances, HMRC may reduce the amount of penalties due. The largest reductions are for unprompted disclosures. The penalty levied can also vary depending on whether the errors are careless, non-deliberate, deliberate or deliberate and concealed.

The Requirement to Correct (RTC) legislation created a new statutory obligation for taxpayers with undeclared UK tax liabilities that involve offshore matters. The RTC applies to any person with undeclared UK Income Tax, Capital Gains Tax and/or Inheritance Tax liability concerning offshore matters or transfers relating to offshore tax non-compliance committed before 6 April 2017.

Information that is required to be provided to HMRC under the RTC rules must be provided to HMRC by 30 September 2018. This date coincides with the date when more than 100 countries will exchange data on financial accounts under the Common Reporting Standard (CRS). This data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

Once the deadline ends, any new disclosure will be subject to the new Failure To Correct (FTC) penalties which are more punitive that the existing RTC penalties. Also, taxpayers risk being publicly named and shamed. The FTC standard penalty will start at 200% of any tax liability not disclosed under the RTC and cannot be reduced to less than 100% even with mitigation.

Any taxpayers that are unsure as to whether or not they need to make a disclosure are strongly encouraged to check their tax position. The RTC rules are very complex and we can help review any historic issues and advise and assist with making any necessary disclosures to HMRC. A disclosure can be made using the Worldwide Disclosure Facility or possibly using alternative disclosure methods which may be more suitable. HMRC’s guidance on making a disclosure, deadlines and penalty reductions under the RTC has been updated.

The Non-resident landlord (NRL) scheme is a special scheme for the UK rental income of non-resident landlords. This includes companies or trustees whose ‘usual place of abode’ is outside the UK. HMRC classifies a person living abroad for 6 months or more per year, as a non-resident landlord. Interestingly, this is the case even if the person is a UK resident for tax purposes.

Generally, basic rate tax (currently 20%) must be deducted, after expenses, from the rent payable to a non-resident landlord, either by the letting agent or where there is no letting agent by the tenants (unless the rent is minimal) and the tax paid over to HMRC within 30 days of the end of each tax quarter.

By using the NRL scheme, a non-resident landlord can apply for approval from HMRC to have any rents paid with no tax deducted. HMRC can refuse an application if it is not satisfied that the information provided by a non-resident landlord is correct or where there are concerns that the landlord will not properly comply with their UK tax obligations. 

Planning note

HMRC no longer send copies of the non-residents landlord scheme annual return form by post. Instead, the form known as the Annual Information Return (NRLY), is available on GOV.UK and should be submitted online or sent by post if online submission is not an option. The annual return for 2017-18 is due to be submitted by 5 July 2018.

If you are a non-resident landlord and would like assistance with completing the various returns or applications, please call.

New legislation that comes into effect from 1 October 2018 will see higher penalties for anyone with undeclared offshore assets. HMRC has published a news release urging taxpayers with undeclared offshore assets to become compliant and warning taxpayers that they will prosecute the most serious cases of tax evasion. These new penalties are part of HMRC’s plans to target overseas tax avoidance.

From 1 October 2018, any new disclosure will be subject to the new failure to correct (FTC) penalties which are more punitive that the existing penalties. The new regime will also mean that some taxpayers can be publicly named and shamed. The FTC standard penalty will start at 200% of any undisclosed tax liability and cannot be reduced to less than 100% even with mitigation.

HMRC is clear that any taxpayers with offshore assets that are already compliant have nothing to worry about. However, any taxpayers that are unsure as to whether or not they need to make a disclosure are strongly encouraged to check their tax position to ensure they are fully compliant and have paid the correct amount of tax due.

Planning note

Some taxpayers may not realise that they must declare their overseas income to HMRC if, for example, they have worked overseas or are receiving income from a rental property outside the UK. HMRC has also published a consultation looking at implementing a new minimum time limit of 12 years for HMRC to assess offshore tax. We can help review any historic issues and advise and assist with making any necessary disclosures to HMRC.

The new requirement to correct (RTC) legislation was introduced by the Finance (No.2) Act 2017. The legislation created a new statutory obligation for taxpayers with undeclared UK tax liabilities that involve offshore matters to disclose any relevant information to HMRC by 30 September 2018.

The RTC applies to any person with undeclared UK income tax, capital gains tax and/or inheritance tax liability concerning offshore matters or transfers. The RTC legislation relates to offshore tax non-compliance committed before 6 April 2017.

The final date (30 September 2018) for correcting historic offshore tax positions coincides with the date more than 100 countries will exchange data on financial accounts under the Common Reporting Standard (CRS). This data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

Once the deadline ends, any new disclosure will be subject to the new failure to correct (FTC) penalties which are more punitive than the existing RTC penalties together with the possibility of taxpayers being publicly named and shamed. The FTC standard penalty will start at 200% of any tax liability not disclosed under the RTC and cannot be reduced to less than 100% even with mitigation.

Planning alert

Any taxpayers that are unsure as to whether or not they need to make a disclosure are strongly encouraged to check their tax position. The RTC rules are very complex and we can help review any historic issues and advise and assist with making any necessary disclosures to HMRC. A disclosure can be made using the Worldwide Disclosure Facility or possibly using alternative disclosure methods which may be more suitable.