Ravi - twelve years of undeclared offshore interest and an instruction to lie
Ravi is 58, was born in the UK and has always been UK resident and domiciled. He is a higher-rate taxpayer with employment income of £85,000 a year. In 2012 he inherited £200,000 from an aunt and deposited it in a Jersey bank account. He has never mentioned the account to HMRC and has never declared the interest, which over the twelve years totals about £85,000 (roughly £7,000 a year); the capital is still £200,000. He now wants to bring the money to the UK to help his daughter buy a flat. He tells you: 'Just put the interest in this year's return as a one-off and nobody will look back twelve years. If anyone asks, say the money was a gift from my aunt.' He is a long-standing client whose other affairs are straightforward and compliant.
1. Explain the correct basis of charge and quantify the tax and interest at stake.
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Basis of charge
Ravi is UK resident and UK domiciled and has been throughout, so he is taxable on the arising basis on his worldwide income. There is no remittance basis question, no non-dom claim, and no question of the capital being outside the charge - only the interest is income, but every year of it is taxable in the year it arises.
Quantification
Higher-rate taxpayer: the personal savings allowance is £500 a year. The starting rate for savings is unavailable because his non-savings income far exceeds £17,570.
Annual taxable interest: £7,000 − £500 = £6,500 × 40% = £2,600 a year.
Over twelve years: approximately £31,200 of income tax. His total income of about £92,000 keeps him in the higher rate band, below the £125,140 additional rate threshold.
Interest and surcharges
HMRC will charge late payment interest at the prescribed rate (currently the Bank of England base rate plus 4%) from the original due date for each year. On the oldest years, twelve years of interest can add a substantial sum. Interest is not tax-deductible and is not a penalty, but it is not reducible for cooperation either.
What is not at stake
No NIC arises on savings income, and the £200,000 capital itself is not taxable - it came from an inheritance, which is not income. But the source must be evidenced: an inheritance from an aunt in 2012 is verifiable; a 'gift' invented now is not.
2. Discuss the assessment time limits, the penalty exposure and the disclosure options available to Ravi.
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Time limits
Assessments can be raised within four years for careless behaviour, six years for deliberate behaviour, and twenty years where the behaviour is deliberate and concealed. Failing to declare an offshore account for twelve years, while filing returns that omitted it, will not be treated as careless. On the likely finding of deliberate and concealed behaviour, all twelve years are within reach.
Penalties
Under Schedule 24 FA 2007 the range is 0–30% (careless), 20–70% (deliberate) and 30–100% (deliberate and concealed), applied to the potential lost revenue. On £31,200 of tax, a deliberate and concealed penalty at the 100% maximum is a further £31,200; even at 50% it is £15,600.
Asset-based penalty
Where the potential lost revenue exceeds £25,000 and the inaccuracy concerns an offshore asset, an additional asset-based penalty of up to 10% of the value of the asset may apply - here up to £20,000 on the £200,000 account.
Disclosure options
- Worldwide Disclosure Facility, via the Digital Disclosure Service. It is unprompted, which unlocks the maximum reduction: minimums of 0%, 10% and 20% across the three behaviour categories. The Let Property Campaign does not apply - the income is interest, not rent.
- Do nothing and wait. HMRC receives Jersey data automatically under the Common Reporting Standard; a prompted disclosure removes the reductions and raises the penalty.
- Requirement to Correct closed in 2018, so that window has gone.
A full, accurate, unprompted disclosure made promptly, with payment offered, is worth far more than any argument about the numbers.
3. What should you do about Ravi's instructions, and what are the professional and legal consequences?
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You cannot do what he asks
Preparing a return that reports twelve years' interest as a one-off, and stating that the capital was a gift when it was an inheritance, would be a knowingly false statement. That is not tax planning; it is tax evasion, and you would be a party to it.
Professional obligations
Under Professional Conduct in Relation to Taxation you must act with integrity, comply with the law, and never be associated with a return you know to be incorrect. You should:
- Set out in writing why the proposal is wrong and what the true position is.
- Explain the unprompted disclosure route and the value of the penalty reductions.
- Tell him plainly that HMRC already holds the Jersey data and that the 20-year window is open.\n- Record the advice and obtain his written instructions.
If he refuses
You must decline to act on the return. You may cease to act, but you should not resign silently in a case of suspected evasion - notify HMRC that you no longer act, without disclosing confidential information beyond what is permitted.
Money laundering
Tax evasion is a criminal offence and its proceeds are criminal property. As a person in the regulated sector you must make a suspicious activity report to the NCA; failure to do so is itself an offence under POCA 2002 s.330. You must not tell Ravi that a report has been made - tipping off is an offence under s.333A.
Recommendation: advise a full unprompted disclosure covering all twelve years, with payment in full or a time-to-pay proposal. That is the only route that protects him from criminal investigation and protects you from being associated with a false statement.