In anticipation of the UK Swiss tax agreement (the agreement) coming into force, HMRC issued a factsheet on 14 November 2012 on how the agreement may affect UK taxpayers with assets managed in Switzerland.
The UK Swiss agreement was initially signed on 6 October 2011 and comes into force with effect from 1 January 2013, when the banks will begin to apply withholding taxes. In some cases, a one-off levy will also be deducted on 31 May 2013.
The purpose of the agreement is to ensure that previously unpaid tax liabilities relating to Swiss assets can be recovered even if an individual wishes to retain his or her anonymity. The factsheet confirms that there are two options in relation to the agreement; an individual can either suffer a one-off tax on the existing funds or authorise the Swiss bank to disclose details of the assets to the Swiss authorities and ultimately, HMRC.
We understand that the Swiss financial intermediaries are already contacting their UK clients, asking them to confirm whether:
- they wish to make a voluntary disclosure; or
- accept a one off levy of between 21% – 41% of the value of the asset (at either 31 December 2010 or 31 December 2012) and also pay withholding taxes on all future income or gains.
It is important to note that even if a UK taxpayer decides to suffer the one-off payment under option 2 above, this does not necessarily clear up the past. It also does not provide immunity from a criminal investigation into the person’s tax affairs.
If the UK taxpayer does decide to make a voluntary disclosure, HMRC’s factsheet refers to the various different disclosure routes available to settle historical tax liabilities.
Normally, the most expedient and cost-effective route of resolving the tax liabilities for the past is the Liechtenstein Disclosure Facility (LDF). The principal benefits of which are:
- immunity from prosecution by HMRC;
- the tax liabilities are restricted to the tax years starting on and after 6 April 1999; and
- a 10% penalty on the tax paid late (to 5 April 2009).
However, the LDF is not the best option in every case and there can be significant financial risks in choosing the wrong route. Our approach is always to consider all the available options before reaching a conclusion on which is the most appropriate in a particular client’s circumstances.
The factsheet refers to the additional provisions in the agreement for non-UK domiciled individuals and non-resident UK nationals. These provisions are complicated but in some cases will provide clients with additional options. Again, specialist advice is helpful in these cases.