The UK and the Isle of Man governments have established an automatic information exchange procedure as well as a disclosure facility for UK taxpayers. This is similar to the UK-US agreement which implements the Foreign Account Tax Compliance Act (FATCA). Under the agreement, a wide range of financial information on UK taxpayers with accounts in the Isle of Man will be automatically reported to HMRC every year.
The new Isle of Man disclosure facility is similar to the Liechtenstein Disclosure Facility (LDF) in that it encourages taxpayers to volunteer information rather than wait and face higher penalties if found out. However, the new facility is much less attractive than the LDF which is now more difficult to join given the level of funds which have to be on the Liechtenstein bank account.
Most importantly, it does not offer immunity from criminal prosecution. Though in most cases prosecution will not be sought.
Secondly, a wider range of taxpayers (than under the LDF) are excluded from its application; in particular, those who have been under investigation previously (both criminal and civil) by HMRC. Taxpayers who have been involved with another disclosure facility are also excluded as well as those subject to the UK/Swiss agreement.
The new facility only applies to UK tax resident individuals who have or have had a bank account in the Isle of Man between 6th April 1999 and 31st December 2013. So there is effectively no way in after 31st December of this year even though the facility will run to September 2016. Under the facility, tax must be paid at the time of the application, unless HMRC agrees otherwise. This exposes taxpayers to a greater risk of discovery by HMRC, as it means that all the relevant computations must be carried out in advance of the application being submitted. The penalties payable under the facility are substantial; 10% to 40%. But this is less than the 200% threatened if do not take part in the facility and are later found out.
UK taxpayers with undisclosed relevant property which includes bank accounts, annuity contracts and trusts in the Isle of Man should act now.
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