Omitted Overseas Rental Income - Coming Clean with HMRC

[haheipah]

I have just realised days before needing to file our 2009/10 tax return that my husband and I have filed incorrect tax returns for the past 10 years. I am wondering the best course of action to 'come clean' to the HMRC as correctly filing our 2009/10 returns will certainly trigger something at HMRC for the reasons below.

We moved from NZ in 1999. We owned two houses in NZ which we have rented out since then however they have always incurred tax losses (hence our naive assumption we did not need to declare the income). One house was our main residence before we left and the other has always been a rental.

My ignorance on this entire matter is only going to sound worse now but during our 11 years here we have brought in about £10,000 from our NZ accounts. Which we have also not declared assuming it was income we had been taxed on in NZ.

In April 2009 we sold the house that was formally our main residence and of course we need to pay CGT on the gain. This tax year is also the first time we have earnt interest on savings on our NZ accounts as we have savings for the first time due to the sale of the house - which has prompted us to fill in the foreign income section and realise our mistake.

Throw into the mix is the question of whether we are non-domiciled. We are definitely ordinarily resident and have been for the past 7 of 9 years which begs the question whether it is wise to declare being non-domiciled with the £30,000 now payable. We still have strong family ties to NZ, have never purchased property here etc. We have always assumed we weren't but we may just be.

My question is how best to approach the HMRC with our mistake? We can complete our 2009/10 tax return on time etc but we need time to seek advice (for the first time as we have always done our returns - seemingly a big mistake now) and work out what we owe, fines and penalties (gulp!). Any advice would be welcome.

[wamstax]

Your exposure may not be as bad as you think however you certainly need to at least file the 2009-10 tax return correctly. One potential solution would be to enter provisional figures on your 2009-10 tax return and engage with a tax specialist who could for a reasonable fee review everything and quantify your problem and (if necessary) take your disclosure to HMRC with a view to getting the best result possible if you have any unpaid tax.
As regards the sale in April 2009 - it is the exchange of unconditional contracts that crystallises the year of any capital gain so that if you exchanged contracts for sale prior to or on 5th April 2009 any capital gain would arise in the year to 5th April 2009 and not April 2010. with a bit more of a problem and desperation I suppose. However because the property was your main residence it could be that with the combination of main residence and lettings reliefs that you might have no (or very little) capital gains tax to pay. Additionally if you and your wife jointly owned it you would be ebtitled to Annual CGT allowance of £9.6K or £10.1K each depending on the year of disposal.
As regards the taxable income (or allowable losses) on the properties these would need to be calculated to see first of all if there would be any profit or loss taking into account whatever tax deductible expenses were incurred. Not all costs are allowable e.g. it is only interest elements of mortgage payments that are deductible not the capital element etc.
However noting your comments regarding your origin it would be that your domicile could play a big part in determining what if any tax would be unpaid on your arising income or remitted income (for periods up to 5th April 2008). As you say the question would be whether it would be beneficial to maintain non-UK domicile and pay the £30K non-dom ANNUAL membership fee. Of course this would only be sensible if you were bringing into the UK substantial amounts that would otherwise give rise to tax in excess of that figure. From what you say it is not clear wht if any source of non-UK income could give rise to that sort of figure i.e. at 40% it would need £75K of income . Penalties are negotiable and can be minimised with the right actions
If you would be interested in engaging experience on a fee paying basis do not hesitate to contact me via my website or on 07751720507

[haheipah]

Thank you so much for your advice. I submitted provisional figures as you suggested (our house was sold 28 April 2009 so within the tax year) and have sought advice to get our previous years returns rectified and to deal with our domicile status.

Hopefully the penalties won't be severe.

Thank you once again.

[Peter D]

"our house was sold 28 April 2009" Was that the Exchange of Contract date or the Completion Date, it is the former that is important. Regards Peter

[wamstax]

See underlined part of answer above - date of sale and exchange therefore was surely 28-04-2009 LOL

[haheipah]

The 28 April 2009 was the 'settlement' date' which in NZ means the day ownership changes to the new owner and the funds are transferred to the seller. The contract was agreed 21 days beforehand and the sale went 'unconditional' meaning neither party can back out of the sale on that same day. Both dates were within the 2009/10 tax year.

[wamstax]

Yes agreed 2009-10 however if the unconditional date had been before 6th April 2009 then it would have been 2008-09