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UK-Swiss Tax Agreement

The Basics

The UK Swiss tax agreement will affect individuals with a bank account, trust or company in Switzerland.

Bank accounts open on 31 December 2010 and 31 May 2013 and held by individual UK tax payers will be subject to a one-off levy of between 19% -34% depending on the length of time the assets have been located in Switzerland. This is in lieu of the historic tax liabilities, interest and penalties that may apply. Note that no account is taken of legitimate, non taxable funds in the account.

Withholding tax on income and gains derived from Swiss bank accounts of 48% and 27% respectively will be applied from 2013 onwards. Dividend income will be subject to a 40% withholding tax.

Banks are required to notify customers as to the impact of the agreement on them, their obligations and rights. The levy and withholding tax can be avoided by the taxpayer giving his consent to the disclosure of data to HMRC. 

Non domiciled individuals will need to provide a certificate, produced by a suitable professional, confirming that he has verified his client’s personal tax return to confirm he is non UK domiciled, that he has or intends to claim the remittance basis for the relevant years and that the non-domicile status is not in dispute.

Options for holders of Swiss bank accounts with undeclared funds 

  1. Allow the Swiss bank to deduct the one off levy and pay to the UK authorities anonymously.
  2. Make a disclosure to HMRC and consider whether this should be done through the Liechtenstein Disclosure Facility (LDF).
  3. Close the account and move the funds to another jurisdiction. Note however that banks have agreed not to assist individuals in this process and will not, as far as we understand, re-book an existing UK customer’s account through, for example, their Hong Kong branch or subsidiary.
    This is a high risk approach for the following reasons:
    1. Similar agreements may be signed with other jurisdictions in the future.
    2. Significant resources are being channelled into tackling tax evasion; higher penalties, up to 200%, as well as a higher tax bill can be expected than if taxpayers make a voluntary disclosure or use the Swiss or Liechtenstein arrangement.
    3. Criminal prosecution is a greater possibility
    4. If HMRC make contact before the Swiss deal comes into force or a voluntary disclosure is made then the taxpayer will face an intrusive investigation into his affairs as well as the associated professional costs.

Comparison of Swiss Agreement and Liechtenstein Disclosure Facility (LDF)

There are some important differences between the Swiss Agreement and a disclosure under the LDF.

The Swiss agreement is effectively a pragmatic way of raising revenue for the Treasury whereas the LDF is a way for the taxpayer to regularise their worldwide UK tax affairs. Under the LDF they would be required to make a full disclosure of worldwide assets whereas the Swiss Agreement will only cover the particular account in question. Under the Swiss Agreement the taxpayer will maintain anonymity as far as HMRC are concerned.

Under the LDF HMRC are precluded from looking back beyond 1999 but all liabilities are effectively wiped out. The rate is fixed at previous tax liabilities, interest and a 10% penalty. Under the Swiss Agreement whilst account details will only have to be disclosed from 2002 onwards, pre 2002 accounts will be ‘fair game’ for an HMRC investigation. In addition it is important to note that clearance for the past only applies to funds subject to the levy. Funds withdrawn or used to acquire other assets may still be liable to UK tax.

The LDF offers a guarantee from criminal prosecution whereas the Swiss deal merely says that anyone who fully cooperates with the tax authorities are ‘highly unlikely’ to face prosecution.

Other Points of Interest

Switzerland will collect data on the destination of funds withdrawn from the country and will pass on this information to the UK in relation to the top 10 jurisdictions to which funds have been transferred. As far as we are aware only totals will be revealed and not the names of individual account holders.

HMRC will be entitled to request information from the authorities for individuals who they suspect of holding a Swiss bank account. They will not need to name the bank but will need to provide the name of the person and the grounds for the request; so called ‘fishing expeditions’ should therefore be ruled out. The number of requests will be limited to an initial maximum of 500 per year.

Conclusion

Clients with Swiss bank accounts are likely to receive correspondence from the Swiss banks notifying them of the agreement and their obligations and rights. It is important that such correspondence is not ignored as the default position will be the imposition of the levy and withholding taxes going forward.

Anyone needing clarification on their UK tax position and/or their rights and obligations under the agreement should seek advice as soon as possible.

Visit our dedicated UK Swiss tax agreement page.

 

 

Date: 3rd November, 2011
Author: Lisa Spearman

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