Swiss Bank Accounts – the Clock is Ticking

The hands of the clock are approaching midnight for UK taxpayers with Swiss bank accounts.

Under an agreement signed between the UK and Swiss governments, Swiss banks will be required to make a one-off payment to HMRC.  The amount of the payment is based on a complicated formula and produces an effective rate of tax of between 21% and 41% of the capital on Swiss bank accounts holding bankable assets (cash and investments  - real estate and safety deposit boxes are excluded) where the accounts are registered to a person in the UK.   The deduction applies where the account was open as at 31 December 2010 and is still open as at 31 May 2013.  The one-off payment will be made by deduction from the account on 31 May 2013.

Income earned on these investments from January 2013 will face high withholding taxes at rates of up to 48%.  These taxes will be deducted without disclosing the identity of the accountholder to HMRC.

As an alternative to paying these high tax charges, it is possible to authorise the Swiss bank to disclose the identity of the accountholder.  However if tax has not been paid on the income in the past, the accountholder will be exposed to the possibility of an Inland Revenue  investigation into their affairs which will result in having to pay tax on all undisclosed income and there will also be high penalties, possibly as high as 150%, on the tax liability.  In extreme cases the accountholder could be prosecuted by HMRC.

For non-UK domiciliaries, they can choose to disclose to HMRC UK source income and gains which have been remitted to the UK where UK tax has not been paid and make a one-off payment of 41%.  Alternatively they can inform the Swiss bank that they wish to opt out and will not choose any of the options.  However this will give no tax clearance for past liabilities.

The Swiss banks have been sending out letters to accountholders informing them of the options and prompt action is required to respond to these letters.

Where the income has not been disclosed, it is possible to take advantage of a special disclosure arrangement, known as the Liechtenstein Disclosure Facility (LDF) in order to regularise matters.  The advantages of using the LDF are:

• The funds in Switzerland are “cleaned up” and the bank can be authorised to disclose the identity of the accountholder; thereby avoiding the one-off tax payment;

• Tax will be due on income and capital gains only from 6 April 1999 onwards.  Income and gains prior to that date are ignored;

• The penalty on the tax due is only 10% on the tax due on the income and gains up to 5 April 2009.  The penalty for later years will be a little higher but this may only affect one or two years;

• Where the money in the Swiss accounts has been  inherited it is possible, in most cases, to avoid the 40% inheritance tax liability that would have been due if the account had been declared when probate was applied for;

• Going forward the accountholder will not suffer high withholding taxes on the income and gains;

• Immunity from criminal prosecution is guaranteed;

• If the funds have been “cleaned up” they can be brought back to the UK rather than remain in Switzerland.

We have considerable experience in using the LDF.

If you think the LDF could be of benefit to you please contact us.  Don’t delay!