The Barclays offshore bank accounts ruling could mean summer of worry for those with foreign assets.
The order that it must dis-close details of offshore accounts held by British residents could cause a headache for some and be a grey cloud for many more, according to accountants Grant Thornton.
Gary Ashford, senior tax manager at the Birmingham office, said: "This could affect the increasing number of people with overseas property as many are likely to have offshore bank accounts, with latest Government figures showing there are 257,000 households with second homes abroad.
"Anyone who holds an offshore account or property and who comes to the notice of HMRC is likely, to say the very least, to receive an 'enabling' letter inviting them to account for what they hold and how they acquired it, and to consider whether any UK tax arises from its possession."
Although only Barclays has been identified, it is expected HMRC will soon demand similar details from other banks.
Barclays Bank alone has 11.1 million current accounts with £78.3 billion of client deposits and assets under management. HMRC has predicted £1.5 billion in unpaid income tax from these customers alone.
Mr Ashford continued: "As more people invest in property abroad, there may be a significant proportion who do not realise that assets in offshore accounts are liable to UK tax.
"Anyone, subject to their tax status, who receives rents or interest from an overseas property or investments will need to declare that income on their UK tax returns and will need to pay tax in the UK on any gains or profits made when they sell the property.
"Tax may also arise overseas, and will need to be paid overseas and set off against any UK liabilities. Failure to properly declare liabilities on overseas assets can lead to charges of interest and penalties as well as the recovery of unpaid tax, and could put individuals in jeopardy of prosecution either in the UK or in the overseas host country."
Individuals should consider local and UK tax advice, especially to ensure wills are up to date. After death you will need to obtain probate in the country concerned and a UK will may not always be sufficient, make sure they are aware of Principal Private Residence relief rules, and ensure full disclosure to the tax authorities in the relevant countries.
The source of the funds used to buy the property or open the investment account will also be the subject of attention from the UK taxman.
In many cases, the tax inspector assumes from the outset that the property has been purchased from untaxed funds and is rented out. A taxpayer who has purchased the property on retirement or via a UK mortgage, or by releasing the equity on their UK property, may also be targeted as a potential tax cheat, and may be required to produce bank records going back several years to "satisfy" HMRC.
The decision is part of a trend of a more aggressive stance by HMRC.
Mr Ashford continued: "There has been a sharp increase in the amount of investigations conducted by HMRC over recent years. In 2004/05 the amount recovered from those self assessing was up 17 per cent on the previous year, according to HMRC figures, a result of much higher HMRC targets."
HMRC's recent annual report and accounts revealed that it had collected £249 million from enquiries tackling non-compliance from individuals who self-assessed in 2004/05, up from £212 million in 2003/04. One of the reasons for this increased effort and yield return is a three year G overnment initiative, launched in March 2004 and costing £115 million, in which HMRC committed to recover £2 billion over the years 2004/05 to 2006/07.
Mr Ashford said: "Owning an overseas property can also cause real problems in respect of the tax residence status of Britons. Care needs to be taken that the unwary do not land themselves with both unwelcome enquiries and potential liabilities." ..SUPL: