It was individuals who were evading tax that HMRC had in their sights when they signed the UK/Swiss Tax Agreement on Co-operation in Tax Matters (the Agreement) which is expected to apply from 1 January 2013.
The terms that have been agreed mean, however, that it is vital that individuals, trustees and beneficiaries who hold relevant Swiss assets and who have complied with their UK tax obligations appreciate that they too must take positive action in relation to the Agreement, otherwise they will suffer tax for a second time. To avoid this double taxation, they will need to authorise the Swiss banks to disclose details of the accounts and account holders to HMRC.
1 This note refers to 'Swiss banks' and 'Swiss bank accounts', for brevity. The Agreement strictly applies to 'Swiss paying agents' which includes some other financial bodies, and to 'relevant assets' which extends beyond bank accounts to, for example, precious metal accounts, stocks shares and securities, and options debts and forward contracts.
2 Unless disclosure to HMRC is authorised, the Swiss bank will, on a date that is likely to be 31 May 2013, make a one-off payment to HMRC effectively in respect of past tax that is assumed not to have been paid; and the Swiss bank will then make ongoing payments to HMRC in respect of tax assumed to be unpaid in future years.
3 Taxpayers who have been fully compliant need to make sure that the Swiss bank is aware that disclosure is authorised, and to check that the details the Swiss bank intends to disclose are accurate and match those which the taxpayer has already included in tax returns.
4 Any payments made by the Swiss bank to HMRC will be made on a 'no names' basis without notifying HMRC of any details of the accounts or account holders. This option may have some attractions for individuals who have good reason to take advantage of Swiss banking secrecy, for example those who are linked not only to the UK but also to one or more other jurisdictions where they fear that leakage of information might make them, or family members, vulnerable to kidnap or ransom demands, or possibly to persecution or reprisals.
5 Non-compliant individuals who wish to bring their tax affairs into order and do not regard banking secrecy as paramount need careful advice on whether the Agreement is the best way to regularise the position. They may not be able to bring all their compliance up to date via the terms of the Agreement, and the Agreement does not confer any protection from criminal prosecution, so they should certainly consider the options of either a conventional disclosure to HMRC, or using the Liechtenstein Disclosure Facility.
6 The Agreement applies to all UK residents, even if not UK domiciled. However, non-UK domiciliaries (non doms) have additional options available to them to reflect the fact that they can arrange their affairs so as to be taxable in the UK only on income and gains that they remit to (bring into) the UK, rather than on their worldwide income. Non doms have a particularly tight timetable for giving notice to the Swiss bank of their non domiciled status, and should seek advice immediately.
7 Taxpayers minded to side-step the issue by simply removing their assets from Switzerland before the Agreement bites should be aware that under the Agreement the Swiss authorities are required to report to HMRC (on a no names basis) the 10 jurisdictions to which the largest volume of assets has been transferred. Anecdotal evidence suggests that Singapore may be HMRC's next target.
8 The Agreement does not only affect individuals who have complied (or, indeed, not complied) with their UK tax obligations. Trustees (offshore and onshore), beneficiaries, executors and heirs all need to know how the Agreement may apply to Swiss assets in which they are interested. In particular, where they have complied with their UK tax obligations, they need to authorise disclosure sufficiently swiftly to ensure they do not pay tax a second time.
9 Swiss banks may often not be fully aware of the detail of a trust structure and it is vital to be sure that they have identified correctly whether there is a 'beneficial owner' of Swiss assets in the structure, and if so who they are. For example, a life tenant may, depending on the circumstances, be a beneficial owner. HMRC take the view that a payment to a beneficiary of a discretionary trust may make them a 'relevant person' for this purpose. Trustees will want to be sure that the Swiss bank understands the situation properly and is taking the correct line, and beneficiaries will want to be sure that their trustees are alert to the implications of the Agreement.
10 Following a death, including the death of a trust beneficiary who is regarded as a 'beneficial owner', prompt action may be needed. Unless disclosure is authorised within a year (and it can sometimes take longer than that for executors to obtain accurate details of Swiss bank accounts) a 40% withholding (mirroring inheritance tax) may be paid over by the Swiss bank direct to HMRC.
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.
