Offshore "Amnesty" - what is an "innocent error"?

Offshore "Amnesty" - what is an "innocent error"?

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Sorry if this has been addressed previously but I couldn't find it by searching.

I have been approached by an elderly couple (aged 80 and 82) in connection with funds (approx £150,000 jointly) they hold offshore from the sale of their foreign home before they moved back to the UK. I am satisfied that the source of the funds doesn't give rise to a liability itself. They did not disclose the income arising on the funds because:

a. In the wife's case, her worldwide income is less than her personal allowance; and
b. In the husband's case, as no income was ever paid to him from his investment he didn't realise he had taxable income to declare. The monies had been invested in what seems to be some form of Unit Trust with any income reinvested in the units. The paperwork is such that it would not be easy to spot this - the only clue was the increasing number of units.

HMRC state on page 4 of DS101 that the facility should not be used for innocent errors. As far as I can see there is no obligation for the wife to make any disclosure provided that her worldwide income has always been less than her allowances.

As far as the husband is concerned, was his an "innocent error"? There is clearly no harm in hedging one's bets and making disclosure under the terms of the scheme but he would save a 10% penalty if "innocent error" is accepted.

What are reader's views?

Angela Williams

Replies (6)

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By ACDWebb
06th Jun 2007 18:23

There is nothing to stop you registering intent to disclose
before 22/6/07 and then negotiating innocent error.

Registering does not mean you have to use the facility it just brings you within its ambit.

I should have thought you might well have a good case to argue for innocent error in view of the clients age, that they were apparently unrepresented until recently (though I suppose that the advice that they recieved on making the investment might have a bearing), and the fact that no cash was received as it was reinvested.

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By User deleted
07th Jun 2007 15:44

Taxable?
Are you certain that the income is taxable.

It is my understanding that stock dividends paid by non-resident companies are not chargeable to UK income tax.

The flip side is that no costs are allowable for capital gains tax purposes.

If cash dividends were simply re-invested then i agree that the income is taxable.

I think you need to take a look at the documentation that was provided to your clients when the investment was first made

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Euan's picture
By Euan MacLennan
07th Jun 2007 14:59

I am puzzled by the facts
You say that the funds (approx. £150,000 jointly) are held offshore, but the couple did not disclose the wife's income because her worldwide income was less than her personal allowance. In other words, they knew that her income from these offshore funds was taxable in the UK, so the husband can hardly claim an innocent error for failing to disclose his share of the income unless his share of the funds was invested separately from his wife's.

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By User deleted
07th Jun 2007 10:50

What is negligent?
You could look at this another way. Has the client been negligent? If so then it is not an innocent error.

An inspector recently told me that if someone reading the guide issued with tax returns could have identified that what they were doing was wrong but did not know because they had not read the guide then were negligent.

I have not read the section on overseas income or the section on unit trusts so I can't give you an opinion without being negligent!

Leaving the offshore amnesty aspect of this to one side, I do find that accumulation units or reinvestment arrangements are a problem when you try to get full information from a client.

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By User deleted
06th Jun 2007 17:21

HMRC view?
Offshore Disclosure Facility FAQ's:

"What disclosures are outside this facility?"

... You should not use this facility if you have evidence that the loss of tax and duties has arisen solely as a result of innocent error. You should contact the tax office with your evidence.

I presume from this (I'm happy to be contradicted) that they have in mind the case where an investor took advice on whether a product would be taxable, and was advised, in error, that it would not (or at least not until maturity).

This could therefore imply that not seeking advice (on whether it was taxable or not) is negligent, and the penalty would apply in all such cases.


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By AnonymousUser
06th Jun 2007 20:07

Not sure HMRC believe errors are ever innocent
certainly on facts not a million miles from above (no idea taxable, not represented) HMRC were completely unwilling to even discuss that the omission might be "innocent" ie no penalties. Would be interested to hear with the amnesty what they end up accepting as "innocent".

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