HMRC’s consultation 

Individuals are taxed on interest arising in a tax year. However, it is common for details of interest from a non-UK investment to be provided on a calendar year basis.  

In its consultation Simplifying the taxation of offshore interest, HMRC says that this mismatch can cause issues for both taxpayers and HMRC, and that more taxpayers will be affected due to the reform of the tax rules of non-UK domiciled individuals.  

One suggestion to address this is to align the taxation of offshore interest with the calendar year. This would mean that individuals are taxable on the offshore interest arising in the year ended 31 December that ends in the tax year. The consultation sought views on this suggestion and more generally about the taxation of offshore interest. 

ICAEW’s response 

In its response to the consultation, ICAEW recommends that: 

• any changes should apply to all overseas investment income and not just overseas interest. ICAEW believes that changing the rules for a single type of overseas income will complicate tax administration for taxpayers with multiple types of overseas income;
• taxpayers can make an optional but irrevocable election to declare their overseas investment income to 31 December, or a date that aligns with the overseas territory from where most of their overseas investment income derives;
• consideration is given as to how a calendar year basis of taxation for overseas investment income would interact with other aspects of the tax system. For example, are trusts and estates included in the proposed measures? If not, there will continue to be a mismatch between the R185s and what the beneficiaries/heirs have to report; and
• there is a further review of whether the UK tax year end should be changed to 31 December. Developments regarding international arrangements for the automatic exchange of information mean that there will be a growing bank of financial data that is not aligned to the UK’s tax year.