On 14 August 2014 HM Revenue & Customs ('HMRC')
announced a number of changes to the terms of the LDF affecting the
ability of certain taxpayers who are not already registered to
benefit fully from the advantageous terms.
Since its introduction in 2009, the LDF has offered UK taxpayers
the opportunity to regularise their tax affairs on favourable terms
including a reduced assessment period (back to 6 April 1999 instead
of the normal 20 year period), the ability to apply a single
composite rate of 40% or 50% depending on the tax year (enabling
taxpayers to avoid paying inheritance tax that would otherwise be
due), a generous penalty regime and immunity from prosecution.
Since the launch of the LDF in 2009, more than 5,700 individuals
have made disclosures and the facility has raised over
£1bn.
The LDF was originally intended to encourage UK taxpayers with
undisclosed assets in offshore accounts to regularise their tax
affairs. The hope was that individuals whose offshore assets would
otherwise escape the attention of HMRC would voluntarily come
forward to make a disclosure. The rules relating to the eligibility
of taxpayers to register for the LDF and benefit fully from its
terms were relatively relaxed, with only individuals who were
involved in an ongoing 'Code of Practice 9 Investigation',
those who were under criminal investigation for a tax matter and
those whose assets comprised 'criminal property' being
prevented from participating. Otherwise, in most cases and
providing the offshore account was not opened through a UK branch
or agency, all the taxpayer had to do was open an account in
Liechtenstein and the full terms of the facility were available to
him.
More recently, UK taxpayers who have not previously held offshore
assets and/or who have been placed under enquiry by HMRC in
relation to UK assets have been registering for the LDF in order to
settle the matter under its more favourable terms. In particular,
HMRC has become aware of an increase in LDF disclosures where UK
taxpayers are seeking to avoid tax investigations into much
publicised tax avoidance schemes such as those involving employee
benefit trusts.
HMRC has now responded to this growing trend by limiting the
eligibility of certain individuals to register for the LDF and
benefit from its favourable terms. As of 14 August 2014, if an
individual's disclosure is not substantially connected to
offshore assets that were held by him before 1 September 2009
and/or to assets already known to HMRC, the full terms of the LDF
will not be available. Similarly, if an individual is the subject
of an HMRC enquiry he will have only three months (from the date of
receipt of notice of the enquiry) to register for the LDF before
becoming ineligible to benefit fully from the favourable terms of
the LDF.
Those caught by the new provisions will still be able to register
and make a disclosure under the LDF but the only benefit they will
secure is immunity from criminal prosecution.
Although the changes described above have received wide coverage in
the UK press we anticipate that they will not be so important for
clients of banks, intermediaries and Withers LLP in Switzerland (as
most have held offshore assets for many years). However, the fact
that the changes were announced with very little warning and
without the usual consultation with professional bodies underlines
the temporary nature of the benefits available under disclosure
facilities.
Those UK taxpayers who are considering making a disclosure under
the LDF should act now in order to secure the significant benefits
of the LDF before they are restricted any further. It is also
important to note that the LDF closes altogether on 5 April
2016.
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.