1. KEY POINTS OF GENERAL RULE

The agreement, which will come into force on 1 January 2013, has been signed by the United Kingdom and Switzerland with the aim of countering tax evasion by UK taxpayers with bank accounts in Switzerland. The agreement is designed to deal with past and future liabilities in respect of income tax, capital gains tax, inheritance tax and VAT. In essence, the agreement provides relevant individuals with two options:-

Either:-

A. Preserve the anonymity of the account by:-

  1. Making a one-off payment to HMRC (via the Swiss tax authorities) at a rate of between 19% and 34% on funds held in respect of past UK tax liabilities; and
  2. Paying withholding tax (levied by the paying agent) on income and gains arising on or after the coming into force of the agreement;

Or

B. Authorise the relevant Swiss bank or financial institution (the paying agent) to disclose information regarding the account to HMRC, thereby avoiding the deduction of withholding tax. There is no limitation period for disclosure and no special rates if interest or penalties apply. If disclosure is chosen, the balances on accounts on 31 December each year going back to 2002 will need to be disclosed.

HMRC have stopped short of guaranteeing immunity from criminal investigation for those who voluntarily disclose or make a one-off payment, though they have made it clear that it is highly unlikely such individuals will be investigated further by HMRC.

To date, there are no plans for a reciprocal arrangement for Swiss taxpayers with bank accounts in the UK, although the agreement leaves it open for such an arrangement to be put in place.

It should be noted that the above rules apply to UK resident and domiciled individuals. The rules are slightly different for non-UK domiciled individuals and these are explained below.

2. NON-UK DOMICILED INDIVIDUALS

A non-domiciliary for these purposes must be non-UK domiciled (as confirmed by a professional accountant, tax advisor or lawyer) and must claim the remittance basis of taxation.

In the context of the one-off payment, as well as being able to choose whether to make the one-off payment or to disclose, as outlined above, a non-domiciliary may:-

Either:-

A. Make a one-off payment only in respect of income and gains arising outside the UK that have been remitted to the UK and amounts that arose from taxable sources within the UK between 31/12/02 and 24/08/11 and on which UK tax has not been fully paid;

Or

B. Opt out – ie neither make any form of one-off payment nor disclose. In the case of an individual who opts out but who is in fact liable to UK tax in respect of the account in question and it comes to the attention of HMRC, HMRC will attempt to recover all taxes and impose penalties or prosecute.

In terms of withholding tax going forward where disclosure is avoided, a non-domiciliary shall be subject to withholding tax only in respect of UK source income and gains and funds remitted to the UK from non-UK source income and gains. The opt-out option as explained above is not available in respect of withholding tax.

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.