UK: Changes To Liechtenstein Disclosure Facility

Last Updated: 8 October 2014
Article by Oliver Davidson

1. Summary

Since 2009 the Liechtenstein Disclosure Facility ("LDF") has been used by thousands of individuals and entities to regularise outstanding UK tax liabilities. However, due to perceived abuse of the LDF, HMRC has restricted the favourable terms available to people who register for the LDF on or after 14 August 2014, subject to the satisfaction of certain conditions.

It is the availability of the favourable terms of the LDF, not the LDF itself, which has been restricted; the categories of people who cannot enter the LDF remain the same.

Section 2 looks at the new terminology adopted by HMRC; section 3 broadly outlines the circumstances in which these new restrictions will apply, with the following sections 4 to 6 elaborating on each particular circumstance; section 7 addresses some practical consequences.

For further information, please refer to the HMRC website:

2. Terminology

Favourable terms offered by the LDF are now classified as either "full favourable terms" or "limited favourable terms".

"Full favourable terms" are:

  • A 10% fixed penalty on the underpaid liabilities (for periods to 5 April 2009);
  • Assessment period limited to accounting periods/tax years commencing on or after 1 April 1999; and
  • The option to choose whether to use a single composite rate of 40% rather than calculate actual liability on an annual basis (or for some years after 2008/09, a Single Charge Rate).

"Limited favourable terms" are:

  • Assurance about criminal prosecution; and

  • A single point of contact for disclosures ("SPOC").

3. Extent of restrictions

Broadly, the full favourable terms will not be available (and only the limited favourable terms will be available) where:

  • No disclosure of new information has been made;
  • The issue being disclosed is already subject to an intervention that began more than 3 months before the application to enter the LDF; or
  • There is no substantial connection between the liabilities being disclosed and the offshore asset held by the taxpayer on 1 September 2009.

4. No disclosure of new information

HMRC expects there to be a disclosure of something it does not already know. Where HMRC is already aware of a taxpayer's liabilities, it will allow access to the LDF but it will not allow access to the full favourable terms.

The following are examples where there is no "new information" and thus only the limited favourable terms will apply:

  • An issue under investigation in respect of which the taxpayer has a change of heart as to the appropriate treatment (e.g. proposing a different basis of tax treatment); and
  • The use of a marketed avoidance scheme by a taxpayer has or should have been disclosed to HMRC under the Disclosure of Tax Avoidance Schemes ("DOTAS") regulations.

Where a taxpayer has used a marketed avoidance scheme that does not have a DOTAS number, disclosure of this would constitute new information and would attract the full favourable terms.

Where the disclosure involves a mixture of new and old information, the limited favourable terms will only apply to the issues for which no new information is supplied.

5. Intervention beginning at least 3 months prior to LDF application


An "intervention" is not exhaustively defined, but includes:

  • Any issue that is the subject of litigation;
  • Any civil enquiry of any kind that is supported by statutory information or investigation powers and is carried out for the purpose of ascertaining whether the UK tax liabilities of the relevant person are correct and up-to-date; and
  • Any co-ordinated, project-based enquiries by HMRC into multiple identified or suspected taxpayers stemming from specific third party information.

An intervention can be previous or current (it does not need to be ongoing).

Full favourable terms will only be available in relation to any issues that are not connected to the intervention. Nonetheless, HMRC has warned that "where the intervention is in depth and is likely to result in the taxpayer being asked to sign a certificate of full disclosure we consider that all matters related to that taxpayer's affairs are subject to the intervention and will only allow access to the limited favourable terms for all issues."

If there is confusion over the issue(s) that are subject to the intervention, the taxpayer via his/her adviser should discuss this with his/her SPOC.


If a taxpayer is subject to an intervention and decides to enter the LDF, they must apply for the LDF within 3 months of the intervention commencing, or otherwise lose access to the full favourable terms.

There is some confusion as to what an "application" entails. HMRC refers to "applying to enter" and "entering" the LDF, apparently treating these as interchangeable. Furthermore, in the FAQs update (see weblink above), HMRC refers to "the date of application" (see "A1"), "the time of registration" (see "A7") and "the time that you enter the LDF" (see "A9"). Whilst HMRC again appears to view these phrases as synonymous, it is arguable that there is a distinction so an application to register for the LDF should be made as soon as possible after the intervention.

6. No substantial connection

HMRC has become concerned that there have been LDF applications where there is little if any connection between the liabilities being disclosed and the offshore asset.

To counter this, a new substantial connection test (the "SC test") has been devised, which is additional to the threshold test that forms part of acquiring a Confirmation of Relevance from a Liechtenstein Financial Intermediary.

The SC test is as follows:

  • Where less than 20% of the liabilities being disclosed are connected to the qualifying asset(s), the taxpayer is only able to access the limited favourable terms in relation to any part of their disclosure.
  • Where more than 20% of the liabilities being disclosed are connected to the qualifying asset(s) (and no other restrictions apply) the taxpayer is able to access the full favourable terms in relation to all of their disclosure.

At present, there is no indication of what would happen if the proportion of the liabilities being disclosed in connection to the qualifying asset(s) is exactly 20%. There are also practical difficulties in deciding whether liabilities are connected to the qualifying asset(s).

7. Practical consequences

There will be no reopening of closed LDF files (i.e. ones that have already been settled with HMRC).

If a taxpayer has already registered for the LDF before 14 August 2014 (i.e. has a registration certificate), then these new restrictions do not apply and the full favourable terms apply. Where an application to register for the LDF is currently on hold, HMRC will advise directly with regard to the repercussions of these new restrictions.

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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