HMRC have launched a consultation 'Simplifying the Taxation of Offshore Interest'. This seeks views on addressing challenges arising from information on offshore interest often being provided to taxpayers and HMRC on a calendar year basis rather than a UK tax year basis.
Background
Individuals are taxed on their investment income, including interest, arising in a UK tax year (6 April to 5 April).
For Non-UK investment income, there is often a timing mismatch between the UK tax year and the period for which the individual will receive details of their income.
- Non-UK tax packs or interest certificates are usually produced on a calendar year basis, owing to many overseas jurisdictions using the calendar year as their tax year.
- Such information is often received around January each year. This means for the latter part of the UK tax year (from 1 January to 5 April), the information taxpayers need to complete the UK tax return may only arrive days before, or even after, the return is due, meaning estimates are often needed.
HMRC also receives details of overseas income on a calendar year basis under international Exchange of information agreements.
- The UK tax year/calendar year mismatch makes it difficult for HMRC to identify whether a taxpayer has accurately declared their income.
HMRC believes offshore Interest is one of the main areas that causes issues. It is anticipated that the Removal of the remittance basis will exacerbate this.
Consultation
The consultation proposes amending the rules such that individuals are taxable on offshore interest arising in the year ended 31 December that ends in the tax year.
- For example: for the tax year ending 5 April 2023, an individual would be taxed on offshore interest arising in the year ending 31 December 2022.
It is suggested that this will reduce the challenges created by the current regime and, in addition, wider benefits might include HMRC:
- Coding out low-value liabilities, removing taxpayers from Self Assessment.
- Prepopulating returns with the aim of helping taxpayers and reducing errors.
The consultation notes that there would have to be a transitional year to any new regime, and there will be practical points to address, such as:
- How to deal with foreign jurisdictions that do not have a 31 December tax year, such as South Africa (28/29 February) and New Zealand (31 March).
- Whether any change should be mandatory or optional.
The consultation closes on 22 January 2025. Responses may be submitted by e-mail.
Consultation questions
1: Do you agree with the issues caused by the mismatch as set out above?
2: Are there any other issues this mismatch causes?
3: How would you mitigate these issues?
4: Which changes could be prioritised to drive improvements in the taxpayer experience?
5: Is it right to focus on offshore interest only at this stage or should all offshore investment income be considered at the same time?
6: Do you think the idea of aligning taxation of offshore interest to a calendar year has merit?
7: Do you agree the issues identified with this solution are the right ones?
8: Are there other issues that have not been covered?
9: How would you deal with the transitional year?
10: Do you receive tax information from your Financial Institute on a calendar basis?
11: How often is tax deducted at source on payments of offshore interest?
12: Should the proposed solution be mandatory if it did go ahead?
13: Do you think this measure could cause issues for financial Institutions, agents and taxpayers when considered alongside basis period reform?
14: Do you have any ideas on how reporting requirements can be further simplified for individuals with offshore income?
15: Are there any other challenges you have with reporting requirements for offshore income?
Useful guides on this topic
Foreign income and residency pages: FAQs
How do you complete the foreign and residency pages of the Self Assessment return?
Offshore Income Tax Toolkit
This toolkit provides an outline of the tax issues for UK resident individuals with offshore income and investments.
Common Reporting Standard (CRS)
What is the Common Reporting Standard (CRS)? What are the consequences of the CRS?
Non-Domicile: Rules from 5 April 2025
What are the changes to the 'non-dom' regime? What does this mean for non-doms currently using the remittance basis? How will income tax, capital gains tax and inheritance tax be affected by the changes?
Savings income: How interest is taxed
What is savings income? How is savings income taxed? What allowances are available? What is the Accrued Income Scheme?
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