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Our previous briefing note dated 26 August 2011 considered the
announcement on 24 August 2011 that the Swiss and UK Governments
had initialled an agreement on greater co-operation in tax matters
(the "Agreement"). That Agreement was signed and
published on 6 October 2011. This briefing note summarises the
headline terms of the Agreement. A separate briefing note will
consider the terms in more detail.
In summary, the Agreement will allow individuals with Swiss
assets who have not paid all the tax due on income and gains from
these assets, to regularise anonymously the past, and pay tax in
the future, in certain circumstances without disclosing those
assets on their normal tax returns.
As a means of regularising the past the Agreement is different
in scope from the Liechtenstein Disclosure Facility, which is more
likely to be financially beneficial, but which does not keep the
assets confidential.
Key dates
Before 1 January 2013 – effective decision time. If
using one-off deduction to pay tax, it might be beneficial to sell
assets by this date to fund deduction
1 January 2013 – expected implementation date
By 28 February 2013 – financial institutions to write
formally to affected clients
Before 31 May 2013 – formal decision time; one-off
deduction will be made by default
Who is affected
UK resident individuals who were the beneficial owners of Swiss
assets, or of structures (widely defined and including some
insurance products) which hold those assets, on 31 December 2010
and 31 May 2013. This includes individuals who were
actually UK resident in law or who are in some
circumstances treated under the Agreement as UK resident,
because the financial institution has a UK address or passport for
them on record.
Non-domiciled individuals - special rules apply
to those who are certified by a lawyer, accountant or tax adviser
(a) to be non-domiciled and (b) to have claimed the remittance
basis at the relevant time.
Discretionary trusts - whilst some
discretionary trusts might not be caught because it is not possible
to ascertain the beneficial ownership of the trusts' assets, it
is not yet clear whether the exclusion will apply if a narrow class
of beneficiaries is named in the trust deed or letter of wishes and
recorded in the institution's files.
Trustees/companies etc - their tax liabilities
cannot be regularised through the Agreement.
Regularising the past
The following options are available to regularise the past:
Funding the one-off deduction - unless the
account consists of GBP cash, assets will need to be sold to fund
the deduction. If they are standing at a profit, this will create a
gain. This gain may not be exempt from tax (the Agreement is
silent). In some circumstances selling assets before 1 January 2013
to fund the deduction might be beneficial.
Non-doms - the transfer to HMRC of the one-off
deduction might count as a remittance, possibly resulting in
further tax. Clarification is required. To avoid remittances of
past income/gains being taxable in the future, non-doms might
consider electing for the full deduction so that the Swiss funds
are effectively "capitalised".
Withdrawn funds - it appears that funds
withdrawn from Switzerland before 31 December 2010 will not be
regularised by the one-off deduction. It might be possible to
transfer those funds back to Switzerland now so that they can be
regularised.
Exclusions - the one-off deduction option will
be unavailable in the following circumstances:
on 31 May 2013 the relevant person is under investigation;
the individual was previously subject to a serious criminal
HMRC investigation;
the individual was previously subject to a civil HMRC
investigation after 31 December 2002, in which the Swiss assets
were not declared;
the individual has previously participated in, or been
contacted personally by HMRC in relation to, any previous UK
disclosure facility;
the relevant assets are the proceeds of crime, other than tax
evasion, or the proceeds of attacks/fraud against the UK's tax
and benefits regimes.
Investment income/gains from 2013
The following options are available to tax investment
income/gains arising after 1 January 2013:
Capital gains- these are computed in the normal
way. If the acquisition costs are unknown they are deemed to be
nil, meaning the entire sale proceeds are taxable gain. This could
be a significant issue for clients with long-held assets.
Inheritance tax- anonymous assets owned by UK
domiciled individuals will still be subject to inheritance tax
under normal rules.
Other relevant terms
There are other important terms which may impact in particular
cases. Note that the assurances in relation to stolen data
and criminal prosecutions are limited.
Comparison between Liechtenstein Disclosure Facility and
Agreement to regularise past
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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