UK: Taxing Swiss Bank Accounts

Last Updated: 8 September 2011
Article by Sue Holmes and Ian Walker

The UK/Switzerland agreement

Our tax investigation services team can help you assess your options as the first details of the UK/Switzerland agreement regarding taxing Swiss bank accounts are revealed.

The UK and Swiss Governments announced on 24 August 2011 the first details of the long awaited agreement which will provide for the taxation of funds, held both directly and indirectly, in Swiss banks by UK residents.

The agreement is likely to have effect from 1 January 2013 once approved by both parliaments and will enable UK taxpayers with funds in Swiss banks to keep those assets confidential in exchange for future withholding taxes and a one-off payment to cover any past UK liabilities relating to those funds

Key points

  • One-off deduction of between 19% and 34% of the entire funds held as at 31 December 2010 (depending on length of time the account has been held) will be made on bank accounts which remain open on 31 May 2013.
  • Annual withholding taxes of 48% and 27% will be levied on income and gains arising for tax years from 2013.
  • Individuals may make a voluntary disclosure to HMRC in order to avoid the one-off deduction and future withholding taxes.
  • All withholding will be applied anonymously.
  • HMRC will be able to require the Swiss authorities to provide full details in respect of up to 500 named individuals per annum.

The options available

For UK taxpayers who are already compliant it is likely that they will have to make notification to the Swiss authorities in order to avoid the one-off deduction. The precise terms of this are as yet unknown.

Anyone considering closing a Swiss bank account before 31 May 2013 in order to avoid the one-off levy should reconsider; the agreement with the Swiss authorities is expected to result in notification of funds transferred to other jurisdictions. Should such movements of funds be reported to HMRC, taxpayers could potentially be considered for criminal prosecution.

For UK taxpayers who have not previously fully reported their UK tax liabilities, the courses of action that might be considered are as follows.

Option 1 – Accept the withholding taxes

The one-off deduction will extinguish previous years' tax liabilities. Anonymity will be retained. The rate of the one-off levy and the rate of continuing withholding taxes may, however, prove to be more expensive than voluntary disclosure.

Option 2 – Voluntary disclosure

Where voluntary disclosure is appropriate, the Liechtenstein Disclosure Facility (LDF) must be considered. Helpfully, HMRC has made it clear that the LDF is unaffected by the terms of the proposed UK/Switzerland agreement.

The LDF may well offer the cheapest route to regularising past taxation irregularities. In brief, the LDF offers:

  • Guarantee of no prosecution, if funds did not arise from criminal activities.

  • Liabilities only sought back to 1999/2000, as opposed to HMRC statutory right to asses up to 20 years' taxation liabilities if the LDF is not utilised.
  • Penalties limited to 10% for years to 5 April 2009. Penalties would be significantly higher for liabilities disclosed outside the LDF.
  • The very favourable terms of the LDF will not be available to anyone whose affairs are already under investigation by HMRC under the terms of Code of Practice 9.

Professional advice should be sought as soon as possible before any action is taken. Should HMRC commence an enquiry under Code of Practice 9, the opportunity to benefit from the very favourable terms of the LDF would be lost.

How we can help

The Smith & Williamson tax investigation services team has many years of experience in assisting taxpayers make disclosures to HMRC and regularising their tax affairs. We have helped many individuals in making disclosures under the LDF, and under previous disclosure facilities.

As a 'relevant professional adviser', discussions with Smith & Williamson concerning possible tax disclosures can take place in 'privileged circumstances'. The privilege exemption contained in the Money Laundering Regulations 2003 will apply in such discussions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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