DISTANCE NO OBJECT FOR THE UK TAXMAN

I inherited investments and a current account in Switzerland, which I have not declared in the UK. They are worth about £45,000 and give approximately £1,000 interest a year in Swiss francs. I use the account only when I am in Switzerland. The annual statement clearly shows a 20% European Union retention tax (EURT) deduction. Does this leave me in contradiction with the UK tax authorities?

LW by e-mail

Declare your Swiss interests to HM Revenue & Customs (HMRC) as soon as possible — and expect them to crawl all over you with microscopes until they are satisfied that you have no more dark secrets.

As you are a UK resident, domiciled in the UK for tax purposes, your position is straightforward. You are subject to UK income and capital gains tax on your worldwide income and gains, regardless of whether these are kept offshore or not. Even though you have paid EURT on the bank account interest, you are still obliged to declare it to HMRC.

If you are a non-taxpayer, you can reclaim EURT. If you pay only UK basic rate income tax, there should be no more to pay in addition to EURT. If you pay higher rate income tax, EURT is set against the UK income tax liability but you will be charged interest and penalties on whatever tax you are still liable for.

You do not say how long ago you inherited the Swiss bank account and investments, but if the investments were in the form of shares or property you could face CGT on any profits from selling them. All this should be declared on an HMRC tax return which, if not sent to you, you should have requested before October 5 following the end of each tax year. That deadline has passed for 2008-09 but under the New Disclosure Opportunity you can declare untaxed income by November 30 and pay a penalty of no more than 10% of the tax due, provided the disclosure is finalised by January 31, 2010 in paper form, or by March 12, 2010 online.

Mike Warburton, tax partner at Grant Thornton, the accountant, said: “The penalty will be nil if the tax involved is less than £1,000 but, as it seems that it has been a problem for many years, the tax is likely to be higher than that.”

HMRC will consider any explanation for not declaring these assets before deciding on the penalty. However, the website warns: “You may have to provide appropriate evidence of your circumstances to satisfy us that your disclosure is complete.”

See what I mean about microscopes?

More details are available at hmrc.gov.uk/offshoreaccounts/

I am writing on behalf of my daughter, who has worked full-time in Russia for nearly three years. She lives in Moscow on a salary from her Moscow-domiciled employer. She does not pay rent, lodging, upkeep or utility bills here or in Russia. She has tried to get an offshore account (in the Isle of Man, for example) but, as she does not pay bills in the UK, she cannot get the banks to open one for her. They all seem suspicious of Russia. She does not want a huge tax bill when she returns.

JG by e-mail

The bank account and tax liabilities are two completely separate issues, but neither should be a big problem.

Many UK banks provide offshore accounts for British expatriates living in Russia. The key is for your daughter to supply as much information as possible. Mark Hemingway at HSBC said: “The employer could write a letter confirming they employ your daughter and her residential address. Other helpful documents could be bank statements from a Russian bank or her UK bank prior to moving to Russia, a driving licence and a lease or tenancy agreement.”

Your daughter should contact a UK accountant or a tax adviser about the tax issues, then explain her position to HMRC.

This country and the Russian Federation have an extensive double-taxation treaty, so non-UK residents do not have to pay tax twice over. When your daughter opens an offshore account, she can keep her money there but UK tax may be due on any interest from such savings. Only HMRC can give a definitive answer after receiving a tax return, which should also mention any money or assets your daughter has in the UK.

E-mail your questions to wealth@sunday-times.co.uk. Unfortunately, we cannot reply to or deal with every e-mail

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