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Saturday, May 30, 2020
Home News UK tax man targets offshore bank account holders

UK tax man targets offshore bank account holders

HM REVENUE & Customs (HMRC) are currently running a national campaign concerning offshore Cypriot bank accounts.  The aim of the campaign is to increase compliance yield by identifying individuals and businesses who have not disclosed interest credited to their offshore bank accounts.

The UK and other countries in the EU exchange information concerning untaxed income under the European Union Savings Directive (EUSD).  If you have held a deposit account in Cyprus to which interest has been credited that interest is likely to be taxable in the UK.  HMRC will now have details of your account along with the amount of interest that should have been declared.

Most people who purchased property in Cyprus off-plan would have had an escrow account set up by their lawyer using a Power of Attorney.  The mortgage to purchase property would have been released to the escrow account allowing the funds to be drawn down by the developer for construction.  The draw down is normally taken in stages by the developer during the period of construction.  The interest earned on the capital held in these escrow accounts is taxable and should have been returned to HMRC.

When HMRC opens an enquiry concerning an offshore bank account the letter they issues is daunting and requests very detailed information.  This can be quite worrying but in reality the nature of these enquiries are quite straightforward and can be resolved quickly.  In certain circumstances it is possible to legitimately reduce the tax bill if the Cypriot property has been let commercially.

If you are affected by this and would like further information contact Lyn Hill – a former deputy director with HM Customs & Excise.


  1. Hi Paul, common sense would suggest you are right but we did all that (and sent letters from lawyers explaining the situation) and they still wanted the money. HMRC have said if/when we prove all this in court and get a judgement in our favour they will refund the payment.

    Until that point all the arguments against AP/AB and the legality/validity of the loan are just allegations and so HMRC will only act on the information they have. That should not stop people from challenging the demands however in the way you suggest as eventually HMRC may at least suspend investigations until after the various actions take place which I feel would be a sensible compromise.

  2. For those of you involved in the Panareti/Alpha Bank property scandal, advise the taxman that the Cypriot bank account was set up without your authority. This can be argued because in most cases clients were never contacted for their authorisation.

    Provided you reported this matter to the UK police and got a crime number, in my case HMRC have not requested any funds from me.

  3. Don’t worry Nigel, we complained straight away to the FSA about the tax advice. However, surprise surprise they stated “we do not regulate/cover them to give tax advice”, apparently they have to do additional courses on this which are not under the FSA’s cover.

    Chocolate and Teapot spring to mind…

  4. @Nathan – from what you say you got very poor advice from your so-called independent financial advisor.

    If he/she is regulated by the UK Financial Services Authority, it may be worth your while complaining to them about the service provided (not about the investment itself – that’s outside their remit).

    Also, the Financial Services Compensation Scheme (FSCS) may be able to help.

  5. What the article fails to say is that in addition to the escrow account, a Swiss franc loan account was set up and ran simultaneously. So whilst you earned interest on the escrow, you were charged interest on the CHF loan.

    The literature explaining this stated that the amount earned would roughly equal the amount charged and that the arrangement would work “much the same as an off-set account offered by UK high street banks”. In reality (because of the much discussed problems with the CHF loans in recent times) the amount charged far outweighed the amount earned. In our case by 17,000 euros. So far from gaining from the loan arrangement we were charged 4 times what we earned and therefore felt we had not made any profit and were not liable to pay tax on a loss of 17k. (HMRC disagreed however and we have handed over £1,000)

    In addition the independent financial adviser who sold us the “investment” also informed us that as non-residents of Cyprus we were not liable for tax and provided us with forms to send to the bank to avoid paying tax on the interest earned.

    So we (and many other people I know of) were not trying to hide taxable income at all, we were just given mis-leading information… for a change.

  6. @Diver Dave – the article is relevant to UK residents, who are liable to pay tax to HMRC and who bought property in Cyprus with a mortgage from a Cypriot bank.

    As the article explains, the mortgage to purchase the property would have been released to an interest bearing escrow account.

    Some of those UK residents failed to declare (or incorrectly declared) the interest earned on their accounts on their annual self assessment tax returns – hence HMRC is after them.

    Had they been residents of Cyprus (like myself) and had registered with the tax authorities here (which they would be required to do if they spent more than 183 days a year here), they would declare their worldwide income to the Cypriot authorities after having registered with the UK tax authorities as being non-resident.

  7. Whats the problem, with tax agreement in place, tax deducted in Cyprus is off set against tax due in UK. If your non resident in UK, then you don’t declare on UK self assessment.

    Personally don’t see the relevance of the article. The only people it caught in other UK offshore countries were those trying to hide other taxable income, these people should be caught?

    For the majority no problem!!

  8. @UBoat – those with overseas bank accounts (escrow or otherwise) and other income derived from overseas should have entered details on their Self Assessment tax return – see Tax on foreign savings and investment income.

    The relevant supplementary pages for their 2012 self assessment tax return can be found at SA106 – Foreign (2012).

    I published a warning last year that a new team of 200 taxation investigators and specialists had been set up by HMRC to identify individuals who, amongst other things, own land and property abroad – such as a holiday home. See ‘UK tax axe falls on overseas property investors‘.

    And from my personal experience with the Inland Revenue office, I know that there are hundreds of Brits claiming to be resident in Cyprus for tax purposes. (The officer I was discussing my tax situation with showed me two letters received from HMRC that he was dealing with. One had a list of about a dozen Brits claiming to live at the same address in Pissouri – the other was at least half an inch thick containing names of people claiming to live at the same address in Paphos).

  9. That’s it…… Well done Government, persecute your own….

    Along with the threat of some people not being able to sustain a lifestyle from a hard earned pension plan, one of your recent articles. (HMRC and QROPS) They now want the interest of those who work to better them self’s to pay AGAIN for those that wont get off there fat lazy A..e and expect the likes of us to pay for them…….

    No wonder the Great British public want out of Britain these days.

    Looks like it’s Australia for me then ….



  10. This could be interesting, escrow accounts gaining interest and controlled by Cypriot lawyers, I wonder who benefited from these arrangements, the buyers? the lawyer?.

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