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In 2011 the UK and Swiss governments signed an agreement to deal with Swiss bank accounts held by UK residents.

Under that Agreement account holders had a choice – opt for voluntary disclosure or retain anonymity. The deadline for making a decision was 31 May 2013.

Under the voluntary disclosure route Swiss banks provide the names of UK resident account holders to HMRC each year. The first disclosure was for the 2012/13 tax year and therefore it was essential to ensure that income and gains realised on the funds in the account for that year and earlier years had been disclosed to HMRC. Many people chose to regularise matters by using the Liechtenstein Disclosure Facility (LDF). The LDF had the unique advantage of limiting the disclosure period to income and gains earned since 6 April 1999 and a penalty of only 10% was levied on tax due up to 5 April 2009. (Penalties for deliberate omissions are usually much higher and in certain cases can be as high as 200% of the tax due). The LDF also offered a guarantee of immunity from criminal prosecution. A successful LDF disclosure has the advantage of giving clearance on all past tax liabilities on the Swiss account.

If the account holder opted to retain anonymity a one-off charge was levied on the capital in the account and this was paid over to HMRC. The one-off charge was calculated using a complex formula and the rate of the charge was between 21% and 41%. Income and gains are subject to withholding tax at rates varying between 27% and 48%. The one-off charge does not provide immunity from prosecution and also does not confer clearance for past tax liabilities. It only clears liabilities to income tax, capital gains tax, inheritance tax and VAT where these liabilities relate to the capital balance used to calculate the one-off charge.

As a result there could still be an exposure to tax in respect of monies previously withdrawn from the account where the withdrawals were not included in the capital balance used to calculate the one-off charge. There could also be a liability to corporation tax if the money deposited in the account had been diverted from a company.

Even if the one-off charge has been paid it is not too late to regularise matters. The LDF can still be used to put things right and the one-off charge can be used as a credit against tax liabilities. In some cases there may be no further tax to pay but a disclosure under the LDF will give clearance and peace of mind.

We have dealt with a considerable number of LDF disclosures. If you wish to discuss in confidence then please contact me.

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;