UK-Swiss Tax Agreement FAQs: All You Need To Know, From McGrigors

The UK-Swiss tax agreement ends decades of guaranteed anonymity for UK residents holding Swiss bank accounts, say McGrigors, the leading commercial and tax law firm.  McGrigors point out that under the new agreement, the Swiss authorities will have to provide information on up to 500 named individuals per year. 

The new power represents a major advance on previous arrangements whereby Swiss banks were only obliged to disclose information where HMRC could provide both the name of the account holder and the account number.

Jason Collins, tax partner at McGrigors says: “The details are scant at the moment, but the new power potentially means that HMRC could send a list of names across and ask for details of any bank accounts in Switzerland the people on the list hold.” 

“Because of the limit of 500 requests per year, HMRC will be selective in how they use this power. They are likely to target specific wealthy individuals or families that are of particular interest to them.”

McGrigors say that holders of Swiss bank accounts must now consider the most appropriate method for meeting their tax liabilities.

Jason Collins adds: “People need to do computations under both the Swiss deal and the Liechtenstein Disclosure Facility and see which would be better for them.”

FAQs

On Wednesday the UK Government announced that it had reached a landmark agreement with the Swiss Government over taxation of undeclared Swiss bank accounts. Phil Berwick, a director in the Tax team at law firm McGrigors, answers the questions looming large for those exposed to the new tax.

The UK and Swiss Governments have agreed a deal on Swiss bank accounts. Do I need to be concerned?

If you have offshore capital in Switzerland which you have not declared to HMRC, then yes. This is a significant change and is part of sustained and energetic efforts by the UK exchequer to crack down on offshore tax evasion. We expect, based on how HMRC are already acting, that anyone who does not participate may face prosecution if HMRC discovers the existence of Swiss assets later. 

What are the main features of the agreement?

A withholding tax on future income and gains derived from undeclared Swiss bank accounts will be introduced from 2013. This will be levied at a rate corresponding to UK taxation ranging and currently described as 27% for capital gains to 48% for interest.

There will be a one-off levy of between 19-34% that will be applied to all Swiss accounts held by UK residents, depending on how long the assets have been in Switzerland.

Account holders who do not want to pay the flat tax can consent to the disclosure of their data to HMRC.

On payment of the flat tax there will be no further comeback by the UK except where: (a) a disclosure facility was previously used, for example under the Offshore Disclosure Facility in 2007 or the New Disclosure Opportunity in 2009, and HMRC discover that the previous disclosure was incomplete or (b) the assets are derived from “criminal sources”.

Customers who opt out of the flat tax must close their Swiss accounts.

The UK will be able to request from Switzerland the bank details of up to 500 individuals each year.

Banks will be required to notify customers as to the impact on them, what their obligations are and what rights they have. Time will then be allowed to enable the customer to come to a decision about their preferred course of action.

Who will be affected by the deal?

The deal is likely to affect tens of thousands of people.

Money from a wide range of sources is held in Switzerland, much of it for decades. Examples include:

People who have worked abroad since the 1950s and opened Swiss bank accounts to hold their earnings, failing to declare it on return to UK. Examples include money made in oil and gas and international trade.

Inter-generational. A lot of ‘old money’ has been held in Switzerland for two or three generations. This will be the hardest for HMRC to unlock.

Money moved to Switzerland in the past to avoid exchange controls or international sanctions, particularly those applying to former UK colonies such as Rhodesia. This money could not be declared to HMRC because that would involve divulging the source.

Money hidden in Swiss bank accounts before and during divorce. Spouses hiding their assets in this way may have perjured themselves during divorce proceedings.

Is there a minimum amount which you need to have held in Switzerland to become eligible for this? 

No. 

What are the options for holders of Swiss bank accounts?

Allow the Swiss bank to take the amounts in question and pay them to the UK authority anonymously.

Come forward and disclose under the Liechtenstein Disclosure Facility (LDF) on a named-basis. This may work out better for many.

Close the account and try to ‘flee’ to another jurisdiction – a high risk option.

Will people who ‘flee’ be caught?

Under the terms of the agreement, the Swiss authorities will not be required to disclose the details of those that have chosen to ‘flee’, in other words, move their assets to another jurisdiction. They will however, provide aggregate figures showing how much money has gone. 

For the first time, the Swiss have agreed to provide information on named individuals on a mass scale. Previously they would not provide any information unless HMRC had managed to obtain the account number of an individual they suspected of tax evasion.

What are the penalties? Could I go to prison?

Those individuals who use the flat tax will not be at risk of prosecution providing they have not submitted an incorrect disclosure under an earlier disclosure opportunity, and that their assets are not derived from criminal activity. 

HMRC may prosecute some individuals that have abused previous disclosure opportunities, to show that they are serious about tackling tax evasion.

 

 

How likely is it that I will be targeted by HMRC?

McGrigors’ research has shown that HMRC has become increasingly successful in targeting wealthy individuals. 

Data uncovered by our team earlier this year found that a new team at HM Revenue & Customs (HMRC) responsible for investigating very wealthy taxpayers clawed in £85 million in additional tax in its first year, more than three times the amount taken in by the team it replaced. We have also recently found out that criminal convictions for tax evasion have increased by 38% during the past year. 

There is a much higher risk than in the past that HMRC is, or will become aware of your offshore assets and this agreement increases that risk further. 

The penalties for offshore evasion have been increased to a maximum of 200% of the tax unpaid.

Can I simply move my assets somewhere else, like Singapore or Monaco?

There are now fewer low tax countries where capital can be freely moved. In our experience it is possible to resolve past tax liabilities with HMRC, often on favourable terms.

The Swiss agreement has been designed to include some incentive to facilitate individuals coming forward.  In our view it offers an excellent opportunity to become UK tax-compliant and avoid penalties.

Maintaining secrecy whilst evading tax is increasingly difficult, and carries the risk of going to prison.

When will the flat tax be introduced? Will there be some sort of amnesty before then?

The flat tax will apply from 2013.

The Swiss agreement includes an incentive to disclose so that no late payment interest or penalty will be applied under the flat tax arrangements. Otherwise there will be no specific amnesty.  

In some cases it should be possible for individuals to resolve past tax liabilities under the existing Liechtenstein Disclosure Facility. 

Could the Swiss banks now be compelled to hand over my financial details to HMRC?

Yes, HMRC can apply to Switzerland for certain information.

What if I think I am tax-compliant, how do I prove it?

We suggest that you speak to McGrigors, as we are one of the leading firms in the UK in relation to UK tax rules on offshore compliance.

Is this deal signed and sealed?

It still needs to be approved by the Swiss Government but it is expected to be ratified.

For more information visit www.mcgrigors.com