The rules require taxpayers to notify the tax authority if there is a possibility that money held offshore has not been taxed or reported, including income tax, capital gains tax or inheritance tax for the relevant periods. It only applies to tax non-compliance issues pre-dating 6 April 2017.  

Taxpayers with unpaid tax must report any outstanding liability to HMRC by 30 September 2018. The deadline coincides with the start date for the introduction of the common reporting standard, at which point more than 100 countries will start exchanging and sharing data on financial accounts between tax authorities. This will make it much harder for individuals to keep offshore assets beyond the reach of HMRC.

Under the new regime HMRC will have the power to take appropriate action to collect tax, interest and any penalties due.

For tax non-compliance to be within scope of the Requirement to Correct rule, HMRC must have been able to make an assessment to recover the IHT or CGT in question on 6 April 2017 or make a determination to recover the IHT in question on the day after Royal Assent is received for the new provisions.

The tax non-compliance involves an offshore matter if the unpaid tax is charged on or by reference to:

• income arising from a source in a territory outside the UK;
• assets situated in a territory outside the UK;
• activities carried on wholly or mainly in a territory outside the UK; or
• anything having effect as if it were income, assets or activities of a kind described above.

In the case of IHT, the guidance states that ‘the tax non-compliance involves an offshore transfer if it is not an offshore matter, but the disposition that gives rise to the transfer of value involves a transfer of assets, and after that disposition, but on or before 5 April 2017, the assets, or any part of the assets, are transferred to a territory outside the UK’.

Where taxpayers are unsure whether they have undeclared offshore tax they will need to review their affairs to check whether action is needed to comply with the RTC.

The penalty system will take into account levels of compliance and any tax liability which is not reported under the new rules by 30 September will face higher penalties.

The HMRC guidance states: ‘Failure to disclose the relevant information to HMRC on or before 30 September 2018 will result in the person becoming liable to a new penalty as a result of their failure to correct.

The new penalty is likely to be much higher than the existing penalties, with a minimum penalty of 100% of the tax involved, HMRC said.

‘To avoid becoming liable to these new higher penalties, a person must correct the position by no later than 30 September 2018. If they do this, the tax and interest will be collected and the existing penalty rules will apply.’

This new legal requirement is included at s67 and Schedule 18 of the Finance (No. 2) Act 2017, which has not yet been enacted but is due Royal Assent before the end of 2017.

HMRC guidance Requirement to Correct tax due on offshore assets issued 16 November 2017.