HMRC overseas income letters: what you need to know

If you are a UK resident with overseas bank accounts, you may have recently received a letter from HMRC regarding your foreign assets, income or gains. These letters are part of HMRC’s efforts to ensure taxpayers are fully compliant with UK tax obligations regarding overseas assets.

While receiving such a letter can be concerning, understanding its purpose and the steps you can take is crucial to resolving any potential tax issues efficiently.

Why HMRC sends these letters

HMRC has been writing to UK residents with overseas bank accounts to encourage them to check that their UK tax affairs are up to date. The letters refer to information HMRC has received through automatic information exchange agreements with other countries, which require jurisdictions to exchange data on bank accounts held by UK residents annually. This data may indicate that the recipient owes tax on overseas income or capital gains.

What information is exchanged?

Participating banks provide such information as:

• The account holder’s name(s) and address
• Confirmation of tax residency
• Details of income and gains deposited into the account
• The account balance at the end of the relevant calendar year.

Purpose of the letters

Commonly called ‘nudge’ or ‘one-to-many’ letters, their purpose is for recipients to review their historical tax affairs. HMRC issues these letters when there is a risk that overseas income and gains may not have been reported, either because the individual does not file UK tax returns or their return did not include the foreign pages.

How to respond

There may be several reasons why overseas income and gains have not been reported. The information HMRC holds usually relates to historical tax years, and HMRC does not initially conduct detailed checks. UK tax rules can be complex, especially for those not born in the UK who do not regard the UK as their home country. It is important to take the letter seriously and seek specialist advice immediately.

HMRC recognises that those unfamiliar with the UK tax code may not realise that they need to report their overseas income and gains. Or they may have taken advice that is no longer up to date or relevant.

Certificates of tax position

The letter may include a certificate of tax position, although there is no statutory requirement to complete it. You can simply contact HMRC to acknowledge receipt or register for the worldwide disclosure facility if you believe tax is due. This facility is designed for UK taxpayers to bring their affairs up to date voluntarily.

You or your tax adviser can request details of the overseas income and gains HMRC has received. Complete and accurate disclosure is essential, and you may need to contact your overseas bank(s) to obtain the information required to calculate the correct tax owed.

Penalties for non-disclosure

HMRC may impose penalties if a UK taxpayer files an incorrect return or fails to notify HMRC that they need to file a return. Penalties depend on the taxpayer’s behaviour and the location of the overseas assets. If you can show that you either had a reasonable excuse or had taken care when you completed your tax return, there is no penalty.

If HMRC considers that you either were careless or deliberately didn’t report the income or gains, the penalty is a percentage of the tax owed. Because the penalty legislation is complex, it is essential that specialist advice is sought to minimise potential fines.

How Moore Kingston Smith can help

Receiving a letter from HMRC about your overseas assets can be stressful but early action is key. By understanding the purpose of these letters and seeking expert guidance, you can ensure your UK tax affairs are up to date, avoid unnecessary penalties and gain peace of mind.

Our team of tax specialists has extensive experience assisting clients with historical tax matters, including overseas income and gains. We review whether tax is owed, determine if any income is exempt and manage voluntary disclosures to HMRC on your behalf.

We offer a complimentary consultation to ascertain the best course of action for resolving the matter efficiently and minimising potential penalties. For further information, please contact John Hood at Moore Kingston Smith.