Consultation outcome

Simplifying the Taxation of Offshore Interest — summary of responses

Updated 15 July 2026

1. Introduction

This document summarises responses to the consultation ‘Simplifying the Taxation of Offshore Interest’ published on 30 October 2024.

HMRC is grateful to all who responded.

Background

The consultation document explored the challenges with the existing system in relation to offshore income, as taxpayers usually receive offshore income information based on a calendar year, which they then must apportion to UK tax years for their UK tax return. The mismatch makes it difficult for HMRC to identify whether the taxpayer has accurately declared the income.

One suggestion covered in the consultation was that it could be helpful to change the rules so that individuals are taxable on the offshore interest arising in the year ended 31 December that ends in the tax year. Interactions with other policy and the reporting requirements for individuals with offshore income were also discussed.

This consultation builds on the previous Helping taxpayers get offshore tax right discussion document, published in 2021.This consultation explored how HMRC can help taxpayers get their offshore tax right first time, including considerations on what may cause taxpayers to make common errors, and offered initial ideas on how HMRC might address those issues.

HMRC’s strategy is to promote tax compliance and prevent non-compliance, while responding strongly to deliberate non-compliance. The best way to tackle non-compliance is to prevent it happening in the first place, while cracking down on the minority who intentionally break the rules. Therefore, HMRC currently:

• promote good compliance by designing it into HMRC systems and processes, enabling customers to get their affairs right from the outset
• prevent non-compliance by using the data HMRC receive to spot mistakes before the return is final, preventing fraudulent claims, personalising online services and automating calculations
• respond to non-compliance by identifying and targeting the areas of greatest risk and using tough measures to tackle those who deliberately try to cheat the system

HMRC sought to hear from taxpayers, agents, representative bodies, professional bodies, businesses, educational institutions and other interested parties.

A total of 19 written responses were received. These came from:

• 6 representative bodies
• 6 professional advisors
• 7 individuals

A full list of the respondents, excluding individuals, is provided at Appendix A.

Chapter 2 sets out the questions posed in the consultation document, summarises what respondents told us and provides a government response. Chapter 3 then provides more detail on next steps and how HMRC plans to take this work forward.

2. Responses

The consultation document sought views on how the taxation of offshore investment income can be simplified to help reduce administrative burdens for taxpayers and improve the efficiency and focus of HMRC’s compliance work.

Timing mismatch, challenges and focus on bank interest

Currently, individuals are taxed on their investment income arising in a UK tax year (ending 5 April). However, for investment income from offshore sources, there is a timing mismatch between the UK tax year and the calendar year which is the period for which most taxpayers and HMRC get income details. This is because many countries use the calendar year as their tax year and information shared between tax authorities under international arrangements for automatic exchange of information (AEOI), such as the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA), is often (but not always) to a 31 December year end.

To explore this mismatch, the issues it causes, what changes could be prioritised to improve the taxpayer experience, and whether it is right to focus on offshore interest, questions 1 to 5 were posed in the consultation document.

All respondents answering these questions agreed with the issues caused by the mismatch set out in the consultation document.

Question 1: Do you agree with the issues caused by the mismatch as set out above?

Respondents broadly agreed with the issues cause by the mismatch.

Some suggested that the issues are dependent on whether a taxpayer has professional tax advisers and/or a consolidated tax certificate produced for them.

Others raised that tax information from certain jurisdictions is often not available on time, and nudge letters were potentially being misdirected.

Question 2: Are there any other issues this mismatch causes?

Further issues suggested included the same income potentially being reported in different tax years, taxpayers fearing making mistakes, and mismatches arising from currency conversions.

It has also been raised by a few respondents that most taxpayers have been filing their tax returns on the current basis for years without issue, therefore any changes could lead to an increased number of incorrect returns being filed.

A few respondents have suggested that other issues include the calculation of foreign tax credits, clashes with additional disclosures such as the new requirements for online platforms, interactions with the foreign income and gains (FIG) regime and basis period reform, the double reporting of income, and complicated entitlement to income rules.

Question 3: How would you mitigate these issues?

Over 40% of respondents answering this question suggested figures using the calendar year or a different jurisdiction’s tax year should be accepted in the UK tax year in which their end falls. This mitigation was suggested by respondents across the three respondent groups.

Other suggestions included using officially published exchange rates, using discretionary powers to allow informal calendar year reporting, providing an irrevocable option for taxpayers to elect to report to 31 December, or the UK tax year being aligned with the calendar year.

Question 4: Which changes could be prioritised to drive improvements in the taxpayer experience?

Some respondents again suggested that the UK tax year should be switched to the calendar year from the current 5 April year end basis.

One individual taxpayer suggested CRS data should be directly imported into taxpayer’s returns, while another suggested that nudge letters should show the source of any income and gains.

Over 25% of respondents answering this question mentioned that it is not just interest that is affected by the mismatch, but all foreign income, therefore there could be confusion caused if only one aspect of foreign income is switched to a different reporting basis.

A few respondents noted that education of taxpayers on the rules is important.

Question 5: Is it right to focus on offshore interest only at this stage or should all offshore investment income be considered at the same time?

There was agreement from all those responding to this question that all offshore investment income should be considered at the same time.

Issues raised included the proposed solution still resulting in mismatches with CRS/AEOI/FATCA data and taxpayer’s consolidated tax certificates, potential FIG regime interactions, and the need for apportionment of offshore income into the UK tax year still being required.

One representative body suggested that if the proposed measures were to be implemented it would cause greater confusion for unrepresented taxpayers.

Aligning the taxation of offshore interest with the calendar year

A suggestion discussed in the consultation was that it may be helpful to change the rules so that individuals are taxable on the offshore interest arising in the year ended 31 December that ends in the tax year. So, for example, for the tax year ending 5 April 2023 the individual would be taxed on offshore interest arising in the year ending 31 December 2022.

To explore this, question 6 to 13 were posed.

Question 6: Do you think the idea of aligning taxation of offshore interest to a calendar year has merit?

Most respondents agreed that there was merit or partial merit to the proposed idea, although over 40% of those who answered this question mentioned that all offshore income should be included.

One individual taxpayer said that reporting should be based on the tax year of the jurisdiction where the asset is located.

A representative body raised that mismatches could still arise as not all jurisdictions report on a calendar year basis, while a professional advisor said it would likely cause complications for more sophisticated taxpayers.

Question 7: Do you agree the issues identified with this solution are the right ones?

Most respondents fully or partially agreed.

One professional advisor raised the issue of difficulties and costs for taxpayers for whom calendar year reporting would not be appropriate.

Some respondents, including an individual taxpayer and professional advisors, suggested that the reporting period should match the foreign jurisdiction’s CRS reporting period. Other respondents suggested a transition year would be appropriate for such a change.

Other issues raised included:

• an adjustment would still be required for interest from jurisdictions with non-calendar-year tax years
• calendar year reporting may not be appropriate for all taxpayers
• offshore interest would be reported on a different basis to all other offshore income
• the need to clearly define the income that would be in scope

Question 8: Are there other issues that have not been covered?

Respondents raised a variety of further issues for consideration, including exchange rate complications, changes to a taxpayer’s tax residency part way through a tax year, the need for better data transparency to ensure accurate reporting and problems that would arise from reporting one type of offshore income differently to others.

Mention was made of potential interactions with the new FIG regime, as well as limitations around PAYE coding for anyone filing before 30 September in a given tax year which is when HMRC receives CRS data.

Question 9: How would you deal with the transitional year?

Over half of those who responded agreed on the need for a transition year.

Respondents agreed that rules for any transition year should be kept simple and straightforward without creating overlaps or additional complications.

Some respondents highlighted the need for education, guidance and communication with taxpayers on any changes.

Question 10: Do you receive tax information from your financial institution on a calendar basis?

Most respondents noted that this is dependent on the jurisdiction in which the financial institution is based, but generally it is based on the calendar year, particularly for US income.

Some respondents mentioned that UK-based financial institutions have systems in place to report based on the UK tax year, while others mentioned that some financial institutions produce quarterly reports which can be apportioned to the UK tax year.

Question 11: How often is tax deducted at source on payments of offshore interest?

Some respondents noted that this is dependent on the source country/jurisdiction.

Other respondents said that often tax is deducted at source without mention of specific jurisdictions, while some said that it is rarely deducted at source for US accounts.

Representative bodies generally raised that tax is deducted at source where required by the relevant jurisdiction, and that careful planning is needed around the treatment of withholding taxes by overseas jurisdictions.

One professional advisor mentioned that often tax is deducted at source regardless of whether it is permitted under the relevant jurisdiction’s tax treaty with the UK.

Question 12: Should the proposed solution be mandatory if it did go ahead?

50% of respondents thought that it should be mandatory.

One individual taxpayer suggested that if it was not mandatory, HMRC would be in the same position with an inability to match CRS data with tax returns.

Another individual taxpayer said that it should be optional given that many taxpayers currently file based on the UK tax year without issue.

Some representative bodies responded noting that a mandatory solution would prove to be simpler, reduce confusion and limit scope for manipulation or abuse.

Some professional advisors suggested that calendar year reporting could be the default with an option to irrevocably elect to report based on the UK tax year.

Question 13: Do you think this measure could cause issues for financial institutions, agents and taxpayers when considered alongside basis period reform?

Some individual taxpayers suggested that the measure would not be necessary if the UK tax year was aligned with the calendar year, including Basis Period Reform (BPR).

One professional advisor noted potential issues if tax packs are currently prepared to 5 April for offshore income and gains.

One representative body suggested there are no significant concerns as BPR only affects trading and notional business income, and the fact that BPR is now in full effect, although issues could arise if the measure is only applied to offshore interest.

Some respondents mentioned that it would be unhelpful for different sources of income to have different basis periods for reporting.

One representative body mentioned that it is not just BPR that would need to be considered, but also the FIG regime from April 2025 and Making Tax Digital (MTD) from 2026.

Simplification and challenges of reporting requirements for offshore income

To understand how the reporting requirements can be further simplified for individuals with offshore income, as well as the challenges of the requirements, question 14 and 15 were posed.

Question 14: Do you have any ideas on how reporting requirements can be further simplified for individuals with offshore income?

One individual taxpayer suggested that the requirements are currently not that difficult. Some respondents suggested switching the UK tax year to the calendar year.

A professional advisor suggested that all offshore income and gains should be reported on a calendar year basis.

Some respondents mentioned that offshore interest should be taxed based on the income from offshore fiscal years ending in a given UK tax year.

One representative body said that there should be greater sharing by HMRC of the information received via AEOI with taxpayers and agents, while another representative body suggested any changes should consider interactions with the Personal Savings Allowance.

Question 15: Are there any other challenges you have with reporting requirements for offshore income?

One individual taxpayer mentioned that taxpayers are not necessarily aware which country has the taxing rights.

A variety of other challenges were raised, including HMRC not prepopulating returns or sharing the information they have, interactions with the FIG regime, challenges not being limited to offshore interest but all types of income and gains with particular reference to smaller investors.

One professional advisor raised US income being reported on a calendar year basis, including challenges acquiring information for reporting funds and therefore calculating foreign tax credits, which means that some details are not known until after the UK tax filing deadline.

3. Government response and next steps

Government response

The government acknowledges that while most respondents agreed with the issues and timing mismatch set out in the consultation document, there was no consensus on how to deal with this. Differing views were put forward on mitigations, prioritisation of approaches or whether to focus only on offshore interest at this stage.

The government acknowledges that any changes would affect taxpayers differently dependent on whether they have tax representation and the jurisdictions from which they receive taxable offshore income. The need for education is recognised to ensure taxpayers can get their offshore tax right the first time. HMRC will continue to examine taking a multi-channel communications approach and is considering the variety of suggestions mentioned.

Questions regarding the changing of the UK tax year to the calendar year were not under consideration as part of this consultation. This was investigated in the 2021 Office for Tax Simplification report ‘The UK tax year end date: exploring the potential for change’ which identified that the costs of change would be significant.

Action taken already

HMRC continues to be focussed on ensuring offshore tax compliance through helping taxpayers get their tax right the first time, taking robust action to tackle compliance risk, and working with international partners on enforcement.

HMRC has created an Offshore Forum which allows the valuable dialogue with agents and other intermediaries to continue.

The Offshore Forum allows HMRC to discuss developing policy ideas, and other ways of promoting tax compliance, with stakeholders. Meetings take place on a quarterly basis. If you would like further information on the forum, please email nosafehavensForum@hmrc.gov.uk.

HMRC continues to deliver communication and educational products to taxpayers and their agents and has published YouTube videos, webinars and social media campaigns to help taxpayers get their tax right.

HMRC continues to play a leading role in international tax work, at the OECD, for example in the Forum on Tax Administration. HMRC also continues to work with other jurisdictions to help improve the collection of tax worldwide.

HMRC is continuing to pilot the sharing of CRS data with taxpayers, to evaluate outcomes, and to consider whether it should become standard practice.

Future Action

Simplifying the Taxation of Offshore Interest sought to further develop and understand the ways in which the taxation of offshore interest and income can be simplified to ensure taxpayers get their tax right the first time.

The government is grateful for the responses received and notes the lack of consensus on mitigation, prioritisation or a focus on only offshore interest. The lack of consensus and the range of issues raised means that no formal proposals are being made, and we will continue to consider this area.

It is important to note that this paper summarises the responses and is not a verbatim record of all responses due to the number and amount of detail provided. This paper does however, present the main ideas and arguments made in the responses.

Annex: List of stakeholders consulted

7 Individual Taxpayers

KPMG

Association of Taxation Technicians

Low Incomes Tax Reform Group

Chartered Institute of Taxation

Deloitte

TaxWatch

Institute of Chartered Accountants of Scotland

Institute of Chartered Accountants of England and Wales

Moore Kingston Smith LLP

RSM

Forvis Mazars

Jaffe & Co