Tax Disputes & Investigations - The Swiss-UK Tax Agreement
On 6 October 2011, the UK and Swiss Governments signed the agreement, announced in principle in August. The agreement concerns the taxation of assets held in Swiss banks, and other paying agents, by individuals who are UK taxpayers.
Under the agreement, which comes into effect on 1 January 2013 (subject to approval by both governments), UK residents will be able to settle past tax liabilities for a one-off payment on an anonymous basis. Alternatively, an individual can instead elect for the bank to share information with HM Revenue & Customs and to use another means of clearing up the historic position, such as the Liechtenstein Disclosure Facility (see below), where there are undeclared tax liabilities.
Individuals who do not want to participate have to terminate their relationship with the bank before 2013.
Going forward, Swiss banks will have to apply an annual withholding tax on income and gains made by UK residents, unless the individual allows the bank to exchange data with the UK or can prove that they are non-UK domiciled. The withholding tax rate will be effectively equal to the top rates of tax in the UK. HMRC will be allowed to make up to 500 requests per year for information on specific taxpayers in order to check the proper operation of the system. There are complications and exceptions, which can complicate the position. Those with Swiss accounts, or other investments in Switzerland, including those who are UK-compliant, should take specialist advice about their position, and the options available.
For some Frequently Asked Questions on the Swiss-UK tax amnesty, please click here.
The Liechtenstein Disclosure Facility
The Liechtenstein Disclosure Facility (LDF) is unaffected by the Swiss-UK tax agreement. The two processes operate on entirely different lines.
The Swiss deal requires a percentage of a capital balance at a given date to be handed over to the UK on an anonymous basis, whereas the LDF requires the individual to come forward and compute tax liabilities arising since April 1999.
However, the LDF includes a so-called "composite rate option" which can, in certain circumstances, reduce the tax payable. For many people, the LDF will produce a lower final settlement than under the Swiss-UK tax arrangment. When considering what to do, it is necessary to analyse the financial position under both facilities.Taxpayers will also need to consider their priorities, and not just the financial implications.
For more information on the Liechtenstein Disclosure Facility, please click here.