It is always sensible to check that the client’s understanding of the tax rules and reporting obligations is correct: while a specific account may be exempt in their home country, it may well be taxable in the UK.
HMRC now has billions of lines of data on offshore assets, thanks to the Common Reporting Standard, and will “nudge” taxpayers whom it believes have not reported overseas income correctly.
HMRC recently sent nudge letters to UK residents who sold overseas properties but appeared not to have reported the transaction in the UK.
6. Not adapting to ever-changing pensions taxation
As financial advisers will appreciate more than most, the regulations around pensions have changed frequently over the years and tracking the various rules for “old” and “new schemes”, “onshore” and “offshore” is a specialist area in its own right.
As highlighted earlier, up-to-date advice is essential whenever pensions advice is given, and this should always go hand in hand with a review of the tax implications in the client’s specific circumstances.
For example, while the changes to the lifetime allowance rules from April 2023 will make it attractive for individuals to build up and access pension funds above the old LTA, there may also be estate planning considerations that need to be taken into account.
7. Not identifying the complexity in structured products taxation
The taxation of structured products needs careful consideration as these are often (understandably) designed for investment and commercial purposes first and foremost.
This means that the tax charges arising for a client may not always be clear and will vary depending on their tax profile and status.
There are various examples including personal portfolio bonds that highlight the complexities in this area, and the tax risks can be compounded when, as above, clients do not follow the advice they have been given or the law changes over time.
8. Tax planning lacks commercial rationale
HMRC is, rightly, always on the lookout for avoidance arrangements, which in its view simply do not work.
The general advice from HMRC is “if it sounds too good to be true then it probably is”, and it is certainly worth checking with a tax expert or getting a second opinion if necessary.
Another good source for simple checks is gov.uk, where HMRC list arrangements that it considers do not work in a “spotlights” list.
It also publishes a list of named tax avoidance schemes, promoters, enablers and suppliers — any client who has used any of these is likely to need tax advice from an independent expert.
