Failure to declare unearned income

[corriequeen]

My ex-husband has always paid tax at the standard, lower rate. However, for a number of years (about the last 10) he has received unearned income which means his total gross income for the year would be in the region of £55k (about £40k salary, £15k unearned income). Doesn't this mean that he should have paid the higher rate of tax on a portion of his income?

He has recently been talking about completing a tax return, so if the taxman catches up with him, how far back could the tax owing be backdated? I am worrying that I could be liable for some of it, as we were married until 2009. The unearned income was paid into a joint building society account which had his and my name on it, although the unearned income is nothing to do with me, it comes from a family inheritance on his side of the family.

Can anyone advise - do I have anything to worry about?

[ummmm]

So he gets 15k per year paid from an inheritance?

[joko]

what do you mean unearned? where has the cash come from?

[LoftyLottie]

Is this interest on a lump sum that he inherited.

[R1Geezer]

Not only should he have paid higher rate on the difference, he should have been paying all the taxes. So in ballpark figures 40% of 15K x 10 which is approximately £45K. They can go back forever, no limit. For a more complete answer let me know what the source of the income is.

[R1Geezer]

Oh and they'll add interest compounded for the 10 years on a rolling balance at each end of deficit year, so 10 years on 4500, 9 years on 9000 and so on, ouch!

Oh you will not be directly liable but it may well effect you.

probably be ok if it's from an inheritence though, depends on the vehicle for investment we are talking about.

[LoftyLottie]

Corriequeeen has said it is from an inheritance. So I presume it is interest and as you say, Geezer, it depends on the type of investment.

[ummmm]

R1 is right in that they can go back as long as they want..

I was thinking that if it's an inheritance wouldn't the inheritance tax have been paid in a lump sum at the beginning?

[LoftyLottie]

On the lump sum ummmm, but not on any interest that the remainder has accrued since.

[boxtops]

I understood there was a limit of six years, but I could be wrong - others are saying it's not time-limited.
However if the money was in a building society ISA, that doesn't attract tax up to a certain ceiling each year - it sounds from your income from the money as if it could be over that limit. If it was an ordinary BS account, then tax would be deducted at basic rate from the interest before it was paid into your account.
I would hope that there is no come back on you - but it is certainly the case that all income should be declared to the taxman. Was there any reason why he hasn't declared the unearned income before this?

[ummmm]

Boxy...you can only go back with them 6 years...they can do as they want..!!

Lottie...I wasn't actually sure what they meant...but surely the interest gets taxed at source?

[boxtops]

Fair do, ummmm - I've never had to go back 6 years, they're always there on the nail with me!!

[LoftyLottie]

Until we know where this income actually comes from it is really difficult to say though. It could be rent from inherited property. We just don't know!

[LoftyLottie]

I suppose if it was paid into a joint account both parties would be responsible though.

[R1Geezer]

If it is interest from a capital amount then my answer is correct (it may have had some interest dedcuted at source so it may not be as bad). IHT would have been levied on the estate initially and is now irrelevant.

Yes you can go back 6 years, they can go back as long as they want, they can also make assumptions and you have to go along with them unless you can disprove them.

we really need the source of the income to give a more definitive answer..

[corriequeen]

OK, well as best I know, the money is interest paid from a lump sum held in trust, my ex-husband has no access to the lump sum, I think this is held in his father's name, he just receives the monthly interest. The interest appears to be taxed before it is paid, but at basic rate - the reason I think this is that there is a similar arrangement whereby money is paid to another account for my children but a tax rebate is paid each year on that money as they are non-tax payers obviously.

Yes, the amount paid is around £15k per annum interest from the lump sum. I'm afraid I don't have much more information than that, as the ex-in-laws were always very vague about money matters (suspiciously so!)

The interest used to be paid into a joint BS account (ordinary savings account) but was paid to my ex-husband, my name was never involved in the payment. Obviously I got the benefit as joint account holder, but any transactions such as the rebate claim for the children had to be done by him as the payments were made in his name only.

Des this make any sense - I know very little about these things (obviously, I suppose!) but am concerned that I may stand jointly liable for any tax due as I had access to the money with it being in a joint account.

Because he is now my ex-husband, I cannot talk to him about this, and am getting worried.

[boxtops]

Do you pay tax yourself, corriequeen? I am no expert, only a saver myself, but if HMRC thought the payment is 50% to each of you, i.e. £7500 pa, then that could be added to your own earnings for tax purposes.

[R1Geezer]

Then yes he owes 10 years tax on the difference between basic rate and higher rate. The trouble is if he declares it from now they'll probably investogate and lump him with bill for 10 years worth. If he doesn't decalre now the problem is compounded and one day they may find out and slap him with a huge bill. difficult one!

[Skyline D]

The Revenue can go back only six years in making an investigation BUT, if they find something in the six years, they are not limited to that six year spell in going further back to see if the issue was ongoing. So yes they could go back further but only if they find a problem in the most recent six years first.

The ownership of the bank account the money was paid into is completely irrelevant. The sum, if it is taxable, would be taxable on the person who gets the income (ex-husband). Where he banks it is irrelevant so there's certainly no liability for corriequeen.

I would guess that the ex should have been paying additional tax but there may be ways that the Trust was designed to avoid it. It's a specialist area and not one I'm competent to comment on. Even if I was I'd need access to the specific information to know. As would anyone else.

[kinell]

at least he might get a new (stripey) suit out of it....

[corriequeen]

Thank you everyone who took the time to reply. I THINK I feel easier about this now, obviously this could have serious repercussions and I don't want to be implicated in something that is not of my doing. I will just have to see what happens, I suppose.

Thanks again.