Subject to legal challenge, the UK/Swiss tax agreement has become law and will proceed on 1 January 2013. For those with a Swiss bank account it will be decision time. Disclose the account to HMRC, or suffer the past and future withholding tax (retaining anonymity), or utilise the Liechtenstein Disclosure Facility (LDF).

The Swiss banks are now writing to all their clients within the UK requesting a decision on which option they wish to take. No response will result in the bank disclosing to HMRC their name, address, date of birth and extensive bank details from 2002 to 2010.

As the guidance emerges from the UK and Swiss Governments and relevant bodies it is clear that for many individuals the agreement does not provide reassurance that their Swiss assets will be regularised from a UK tax perspective. A few key points are worth highlighting.

  • Withdrawals from the accounts which have not been redeposited before 31 December 2012 will not be cleared. They will therefore be exposed to a tax charge on challenge by HMRC. Additionally the re-deposited funds cannot come from the UK – if they do they will not be cleared.
  • The agreement does not clear any liability in respect of corporation tax, national insurance contributions or tax on overdrawn directors loan accounts.
  • Individuals who choose to suffer the withholding tax going forward at the rates prescribed in the agreement (which are at the top end of UK tax rates) will retain anonymity. If the relevant income is not included on a tax return then on any challenge no additional liability or penalties would be chargeable in respect of that income, in accordance with the agreement. However, personal allowances are withdrawn on income levels over £100k and so an individual whose Swiss income would take them over the threshold will be submitting an incorrect tax return which will result in an additional tax charge liable to a penalty. This is an unfortunate position.
  • The agreement does not deal with the matters which arise before 2002 and income that arose prior to that date will not be effectively dealt with in the past tax calculation. For example, if funds which arose within the time limits for HMRC to recover (back to 1992/1993) were undeclared and have subsequently been spent (so that they are not reflected in the Swiss bank deposits), then they will remain at risk of a HMRC enquiry and a substantial penalty (40-50%).

The LDF however can be used to address and deal with all these issues. Clients and advisers considering the letter from the Swiss bank are well advised to take the advice of an experienced tax investigations specialist to ensure that the client can achieve finality in respect of any undisclosed funds, and use them in the future without having to look over their shoulder.

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.