Posted by Nick Day on 28 Sep 2012
Liechtenstein Disclosure Facility Versus UK-Swiss Tax Agreement
The UK/Swiss tax agreement signed on 6 October 2011 is expected to come into effect on 1 January 2013.
This will leave Swiss bank and investment account holders that have not disclosed details to HM Revenue & Customs (HMRC) with a decision to make by May 2013.
Unless these account holders agree that the Swiss bank can disclose details to the tax authorities, a one-off deduction of between 21% and 41% will be made from the funds in accounts open on 31 May 2013 to settle backdated UK taxes. The formula for working out the withholding deduction is complex and depends on the amount in the account and the number of years the account has been held. From 2013 onwards, automatic withholding tax will be applied to the accounts and this has been set at rates of 48%, 40% and 27% respectively for interest, dividends and capital gains arising. Confidentiality can be maintained if the withholding route is taken but there is no guarantee of immunity from HMRC prosecution. If amounts previously withdrawn have avoided the withholding tax deductions, the risk of HMRC investigation will still exist.
If account holders agree that the Swiss bank can disclose details to the tax authorities, HMRC will normally be able to look back and collect tax on income/gains for the past 20 years and can use its powers to charge penalties of up to 200% of the tax due.
A separate option that most Swiss (and indeed other non-UK) bank account holders that have not disclosed details to HMRC could consider is the Liechtenstein Disclosure Facility (LDF) which has been set up to enable people to voluntarily disclose offshore income/gains and features the following possible benefits:
- HMRC will not look back beyond 1999 – much less than 20 years.
- The choice between paying the actual tax due or a composite tax rate of 40% to cover all liabilities including Inheritance Tax.
- Penalties for the period 1999 to 2009 capped at just 10%.
- No “naming and shaming” by HMRC.
- Conferring with HMRC on a “no names” basis and a single HMRC point of contact once disclosure has been made.
It is possible to make use of the LDF even if you do not have assets held in Liechtenstein at present. There are certain criteria to satisfy for full benefits to apply.
Tax Innovations can help you choose the most tax-efficient route and if necessary organise your affairs to disclose under the LDF, from liaising on your behalf with a financial intermediary in Liechtenstein to working out the amounts at stake and handling the disclosure process with HMRC.
It should be remembered that for those that are not domiciled in the UK, and who have not remitted income/gains to the UK, it may be possible to mitigate the UK tax due on undisclosed non-UK accounts considerably. We can review this for you as part of the process.
Individuals with undisclosed offshore accounts need to act quickly to decide the best course of action and opportunities will be lost if HMRC learns about your account and starts investigating the position.
Danny Alexander, Chief Secretary to the Treasury has just announced that the HMRC team working on the LDF is being doubled in size and is now expected to raise taxes of £3bn, over £2bn more than originally anticipated. He also announced that the HMRC’s Affluent Unit will be expanded and supplemented by 100 more specialists to target the tax affairs of the “well off”, who will be defined as those with a net worth of £1m (currently £2.5m).
Other Tax Innovations articles
If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or email@example.com.
- Property Partnership Incorporation and SDLT
- Overseas Pension Changes 6 April 2017
- Top 10 tax tips for expats moving to the UK
- Tax on Lump Sum Payments from Foreign Pensions
- Non-Domiciled Rebasing for Capital Tax Gains: April 2017