UK: Liechtenstein Disclosure Facility

Last Updated: 2 July 2015
Article by Stuart Gerber, Richard Morley and Dawn Register



In 2009 H M Revenue and Customs (HMRC) announced a landmark agreement with the Liechtenstein government which launched a unique disclosure process called the 'Liechtenstein Disclosure Facility' (LDF). The resulting Memorandums of Understanding (MOU) between the two countries are designed to eliminate all UK tax evasion with a Liechtenstein connection. The MOU also set out the special terms and conditions for the LDF which can be used to resolve tax compliance problems with any offshore element, providing the individual can qualify (see below). The LDF is open for new registrations until 31 December 2015. A new Tax Information Exchange Agreement between the UK and Liechtenstein was also signed in 2009.


The agreement is broad and covers all entities that are 'formed, founded, settled, incorporated, administered or managed in Liechtenstein'. This may include bank accounts, companies, trusts, foundations, partnerships and even insurance policies. Settlors and beneficiaries of trusts may also be included.

The LDF covers all UK taxes including inheritance tax and national insurance contributions.


The LDF is being used by a wide range of people. These include:

  • Families preserving wealth and elderly people putting their tax affairs in order for future generations
  • Professionals eg lawyers, accountants who are at risk of an investigation or prosecution by HMRC
  • Executors of Estates who discover undisclosed assets offshore and need tax clearance from HMRC prior to distributing funds
  • Taxpayers who did not disclose all their assets under a previous investigation
  • Businesses with unrecorded trading income which is diverted offshore
  • Non-UK domiciliaries who want some certainty about their domicile status and may not have correctly filed UK tax returns in the past
  • Those whose one off levy on funds in their Swiss bank accounts did not fully bring their tax affairs up to date
  • Trustees and directors of overseas companies who wish to resolve legacy issues.


If monies are held in Liechtenstein on 1 August 2009, the individual qualifies for the process and can participate at any time. However, those under criminal investigation or who are the subject of a Code of Practice 9 (COP9) cannot qualify for the LDF. Monies or entities can also be moved into Liechtenstein so that an individual can participate. The tax implications of moving assets to Liechtenstein need to be considered but can be beneficial because of the favourable terms of this agreement. Moving assets into Liechtenstein can be as straightforward as opening a Liechtenstein bank account. Financial advice should be sought from a regulated financial adviser as needed.

HMRC requires sight of a Confirmation of Relevance before an LDF registration application can be accepted. The Confirmation of Relevance is evidence that there is relevant property in Liechtenstein at the point of registration and is issued by a Liechtenstein Financial Intermediary such as a bank.


The client does not meet with HMRC; the whole process can be managed by a tax agent. Confidential 'no-names' discussions can take place initially and there will be no HMRC investigation unless the disclosure is incomplete or false. The process is clearly controlled and has a defined start and end, with a Registration Certificate, Disclosure Certificate and letter of acceptance. It is a civil process and entirely confidential. At the end of the process, HMRC will issue a letter of acceptance to confirm all UK tax liabilities are settled. Detailed technical guidance is published and updated regularly on HMRC website at


Those who qualify for the LDF benefit from immunity from prosecution providing a full disclosure is made to HMRC and the monies are not criminal property. This means that even if a person does not qualify for the 'full favourable terms' (see below) it may still be an appropriate method to regularise a taxpayer's UK tax affairs because it is simpler and does not carry the risk of an interview that is part of the Contractual Disclosure Facility (COP9) process.


On 14 August 2014, HMRC and the Principality of Liechtenstein released a Fourth Joint Declaration making a number of changes, effective immediately, restricting the benefits of the LDF.

Even if a person has a Liechtenstein 'connection' then the person may now only qualify for the LDF's full favourable terms if:

  • They have an offshore asset at 1 September 2009 which was not opened through a UK branch or agency;
  • There is a 'substantial connection' between that offshore asset and the tax issues to be disclosed;
  • New information will be disclosed as part of the LDF process; and
  • The case has not been open in another form (such as an ongoing or closed enquiry/investigation into any issue that is to be the subject of the disclosure (including tax avoidance schemes) or where tax returns were issued but not submitted) for more than three months prior to registration for the LDF. This includes situations where HMRC's Offshore Co-ordination Office issued a letter to a taxpayer regarding suspected undeclared offshore bank accounts following receipt of information from a third party.


Those who qualify for the full favourable terms will benefit from:

  • Only unpaid taxes from 6 April 1999 are payable, compared with the normal statutory time limit of up to 20 years. This is therefore a genuine (albeit partial) tax amnesty. Where HMRC agrees that the tax was undisclosed due to innocent or careless errors fewer years' tax is payable;
  • A fixed penalty of 10% - 30% of the tax due to 5 April 2009, compared to the maximum penalties of up to 100% where the favourable terms do not apply; and
  • An election can be filed to use a single composite rate of 40% tax for tax years to 5 April 2009 which may be helpful in circumstances where different tax liabilities arise on the same monies. A separate election for the single charge rate of 50% may be made for the 2010-11, 2011/12 and 2012/13 tax years separately.


Regardless of whether a person qualifies for the full favourable terms, the tax settlement will be limited to only four years with no penalty if it can be agreed with HMRC that the person made an 'innocent error'. For 'careless' errors, the settlement will be limited to six years whereas for 'deliberate' errors the settlement will be for up to twenty years depending on when the issue began and whether the full favourable terms are available.

The penalties in cases of careless errors will be up to 30% of the tax after 5 April 2009, although it may be possible to negotiate for them to be suspended. For deliberate errors the penalties are 20 - 100% of the tax from 2009.

However, from April 2011, the penalties increase to a maximum of 200% where there is an offshore element. The actual percentage will depend on the transparency of the country involved.


There is nothing to be gained by waiting until December 2015 before making use of the LDF – indeed, those who do so are likely to pay a higher price. The start date from which unpaid taxes must be disclosed remains 6 April 1999 and the fixed penalty runs only until 5 April 2009, after which higher rates apply. Interest on the late payment of tax runs from the original due date so delaying disclosure will only increase the interest charged. It is only after making the initial disclosure to HMRC that the individual is protected from prosecution and investigation. Without the LDF registration there remains a risk of HMRC opening an investigation and, if this happens, the penalty charged can be considerably higher. The investigation process is also likely to be more time consuming, costly and intrusive.

The most financially efficient option is to make use of the LDF without delay and complete tax returns as normal thereafter, thus avoiding any further interest and penalty payments. From 1 April 2010 HMRC can publish the names and details of individuals and companies that are penalised for deliberately evading taxes of more than Ł25,000. Making a full disclosure via the LDF prevents any publishing of names and avoids the taxpayer being placed in the Managing Serious Defaulters regime.


We can represent individuals and entities under the terms of the LDF to ensure a full disclosure is made and manage the whole process. All cases will be managed under a 'bespoke service' set up by HMRC. We have the expertise and experience of managing tax disclosures involving the Specialist Investigations Unit within HMRC.

This process is more involved than the other disclosure opportunities and requires careful consideration by any UK resident with a connection to offshore monies. With this in mind, it is important that individuals or other taxpayers who may be affected by these changes seek professional advice as soon as possible, on a no-names basis if necessary, to discuss their specific circumstances. Please contact one of the individuals named below for further advice and a no obligation meeting.

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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