Interest from bank deposits in Poland, UK residency - where to declare?

Our client, Mr. Paweł, who has been working and living in the UK for 10 years, invested some of the money he earned in the UK into deposits in Poland. He came to us very concerned because he found out that he should also pay tax on the profits from these deposits in the United Kingdom. He hadn't done this because he was unaware that he should.

How to file your taxes when you live and work in the UK?

As we have repeatedly stated in our other articles, if you meet the tax residency conditions in the United Kingdom, then your worldwide income should be declared here.

UK residents declare their worldwide income in the United Kingdom

Am I a UK tax resident?

You can find information on the rules for determining tax residency in this article.

In Mr. Paweł's case, the situation was straightforward. Since he had lived and worked in the United Kingdom for 10 years without interruption, only visiting Poland occasionally, and had no wife or children there, he could be unequivocally considered a UK tax resident.

UK-Poland Double Taxation Agreement

The UK and Poland have signed a double taxation agreement, referred to as the DTA, which is based on the international multilateral convention known as Multilateral Instrument (MLI).

It is a collection of legal provisions from which two countries can select specific clauses and implement them as binding regulations in their relations (which also implies making changes to the domestic legal regulations of both countries).

Poland and the United Kingdom signed such an agreement in London on 20 July 2006. A separate article on this topic can be found here.

Under the Double Taxation Agreement (DTA), if you are a UK tax resident, the tax paid in Poland is deducted from the tax due in the UK, ensuring that tax is only paid once.

Mr. Paweł had only paid capital gains tax on the income from his deposits in Poland, and therefore owed taxes in the United Kingdom.

Tax Disclosure how to avoid high penalties for unpaid taxes

HMRC has the right to conduct a tax investigation up to 6 years back, counting from the end of the relevant tax year. Mr. Paweł contacted us in the 2022/23 tax year, so to sort out his affairs with the UK tax office, we had to go back to the 2016/17 tax year.

Fortunately, our client never received any letter or reminder from HMRC. Why fortunately? Because if the tax office learns about tax arrears directly from the taxpayer, and not from another source, the penalty is usually imposed at the lowest possible amount.

Unprompted discosure - what is it?

This is a situation where a taxpayer voluntarily approaches HMRC - without prior request for explanation - and provides the most comprehensive explanations regarding their tax arrears.

More information on Tax Disclosure and the amount of penalties imposed can be found in the following articles:

- Reporting Foreign Income to HMRC - Tax Disclosure;

- Tax Disclosure - Report Overdue Taxes to HMRC;

- What penalties await us in the UK for not filing on time or hiding income?

We helped Mr. Paweł settle his affairs with the British tax authorities. We calculated the amount of overdue tax and sent a letter to HMRC with a comprehensive explanation, emphasizing that the taxpayer voluntarily reported to the tax office without being prompted, and that his tax transgression was unintentional, unpremeditated, and resulted from a lack of knowledge.

HMRC accepted the Tax Disclosure and imposed minimal penalties on Mr. Paweł for all overdue tax years. Our client was very satisfied - he no longer had to worry.

We also prepared a Self Assessment return for him for the 2022/21 tax year, through which Mr. Paweł should annually declare his Polish income to the British tax office.