UK: The UK/Swiss Agreement

The UK/Swiss Agreement became law on 1 January 2013. For those with a Swiss bank account it is now decision time. We have listed 10 important facts about this Agreement that you need to know.

1. The Agreement is not a disclosure facility. However in the event of any challenge by HMRC, the one-off charge may be taken as a payment on account against any tax liability calculated by HMRC.

2. HMRC has yet to issue guidance about how their investigators will react when presented with a 'one-off charge certificate' by a taxpayer. What is clear is they will need to consider whether the relevant capital covered by the certificate results in the clearance of all of the Swiss funds from further taxation - see point 3.

3. The only funds which obtain 'clearance' under the Agreement are those which are in the relevant capital figure. Withdrawals and items such as bank charges are not cleared. Consequently, when challenging a taxpayer presenting a certificate detailing the one-off charge, it will be incumbent upon HMRC to explore the issue of withdrawals and additional tax charges may arise.

4. The only UK tax liabilities which are covered by the one-off charge are: income tax (IT), capital gains tax (CGT), inheritance tax (IHT) and VAT. The following taxes are not covered: corporation tax (CT), director's overdrawn loan account tax, pay as you earn (PAYE - employment taxes) and national insurance contributions (NIC). If challenged by HMRC, these taxes may become payable.

5. The Agreement covers the period from 2003 to date. HMRC has the ability to recover tax for a period of up to 20 years back to 1992/93. For IHT there is no time restriction. Consequently any undisclosed tax matters related to the years prior to 2003 which are not reflected in the relevant capital are open to recovery on challenge by HMRC. For example, this would include undisclosed funds which were banked in Switzerland but withdrawn before 2003.

6. In certain instances the future withholding tax regime under the Agreement will not allow an individual to retain anonymity from HMRC. Firstly, it is important to note that HMRC maintains that individuals are obliged by law to file a self-assessment tax return in the UK reporting the full extent of their worldwide foreign income and gains, including Swiss income and gains. Under the Agreement, any amounts of Swiss income or gains that have been subject to the withholding tax regime, but which were not reported on a tax return, would on discovery not produce any tax, interest or penalty liabilities for that individual. There may however still be occasions where an underpayment of tax arises.

7. In the UK an individual with total taxable income above £100,000 will lose all or part of their tax free personal allowance. If a person has earnings of £90,000 in the UK and a further £30,000 of investment income in Switzerland in the 2013/14 tax year, they will not be entitled to any personal allowance. If they fail to declare the investment income on their 2013/14 tax return, the tax return will be incorrect and they will be granted the personal allowance in error. The liability arising because of that error will be liable to tax, interest and penalties on discovery. On the other hand, if the Swiss income is correctly disclosed on the individual's tax return, any excessive tax withheld can be potentially recovered from HMRC.

8. Whether individuals can obtain complete clearance of all past tax liabilities. It will only be possible for an individual to obtain full clearance of all tax liabilities for the last twenty years, effective immunity from prosecution for any tax offences and the ability to enjoy freely the use and movement of those funds by means of a full disclosure to HMRC or by using the Liechtenstein Disclosure Facility (LDF).

"Non-UK domiciles need to act quickly and take specialist advice to ensure they are not incorrectly taxed by the Agreement."

9. Non-UK domiciles resident in the UK have to satisfy the Swiss bank that they are in fact non-domiciled. Non-UK domiciled individuals who have been taxed on the remittance basis can choose to self-assess previously unreported remittances. That self-assessment of taxable remittances has to be given to the Swiss bank, which will then make a deduction of 34% of the remittances. Where a non-UK domiciled person who has been taxed on the remittance basis is satisfied that they have no unreported liabilities, they can give notice of opt-out. Non-UK domiciles need to act quickly and take specialist advice to ensure they are not incorrectly taxed by the Agreement.

10. The UK/Swiss Agreement has to be administered by the Swiss Government, banks and financial advisers. Unfortunately none of those named groups or institutions are UK tax advisers. Anyone with a Swiss investment asset who is contacted by their Swiss financial adviser regarding the Agreement should consider all the options. There are alternative routes available, for example the LDF, which may be more beneficial dependent upon the facts of each case.

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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