On 6 October 2011, Switzerland and the UK have signed a Tax Agreement regarding the regularisation of existing untaxed assets of UK taxpayers with UK principal address of Swiss accounts. UK taxpayers have now the opportunity to regularise their untaxed bankable assets in Switzerland by levying an anonymous one-off payment for the past as well as a withholding tax regime for the future. The Agreement is expected to enter into force on 1 January 2013, after both Parliaments will have completed the respective ratification procedure.
In addition to the recently concluded Tax Agreement, UK taxpayers have also the opportunity to regularise their historic UK tax affairs on the basis of the "Liechtenstein Disclosure Facility" (LDF). A comparison of the Tax Agreement and the LDF show the following key issues:
- Under the LDF, UK taxpayers will benefit from a worldwide tax clearance and finality approach from a UK perspective whereas the Swiss one-off levy for the past as well as the withholding tax regime for the future will only grant tax clearance limited to the bankable assets in Switzerland as per 31 December 2010 (no finality and even clearance under the reservation that potentially removed assets have been repatriated to Switzerland).
- LDF procedure offers to the UK taxpayer extensive and unrestricted immunity from prosecution and privacy whereas the Tax Agreement does not provide immunity from pending (and internal) criminal and civil investigations which could lead to an ordinary 20-years-back assessment taxation, to penalty taxes up to 200% and potential publication of data ("name and shame") although the one-off payment is limited to 2003 on first sight. The LDF on the other hand is limited to include only the UK tax years commencing on April 1999.
- The LDF procedure allows an account holder to regularise his tax affairs immediately, rather than waiting until 2013.
- Although the disclosure process is not anonymous throughout the LDF, the UK taxpayer will enjoy unrestricted privacy without any exchange of information for assets located in Liechtenstein; the Tax Information Exchange Agreement (TIEA) will basically enter into force not until 31 March 2015.
- Until 31 March 2015, the LDF is generally open for UK taxpayers who have no prior connection to Liechtenstein whereas the Tax Agreement is only an option for UK taxpayers who have a Swiss account conditionally open on 31 December 2010.
- The LDF will be likely the cheaper option, in particular for moderate as well as for inherited assets by way of an agreed composite rate tax (average overall tax rate approx. 18% compared to approx. 25% under the Agreement).
- Under the LDF, only interest/investment income and capital gains are liable for taxes (and not the relevant assets and the increase of assets itself).
- Further, with the LDF option, all UK taxpayers may declare their tax liabilities themselves without the need of a UK professional involved independent from their UK tax status (so-called "Self-Certification" declaration).
- Under the Tax Agreement, Certification must be provided by a UK professional even for UK residents who are not domiciled.
- Last but not least – in time disclosure under the LDF will pay off: exposure of additional tax liabilities and investigations through HMRC may be minimized or even eliminated. Do not forget that both options are simultaneously available to UK taxpayers only having a Swiss account by establishing a Liechtenstein connection now or in future. UK taxpayers can therefore rely on their Swiss financial intermediary while keeping this longstanding relationship. The involvement of the relevant Liechtenstein financial intermediary guarantees an extensive, full and sustainable solution in favour of and to the best benefit to the UK taxpayer under the condition that the respective services will be properly coordinated.
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.