With the HMRC having recently sent out their first batch of warning letters to Swiss Account Holders, I though it may be useful to recap the details of the UK and Swiss Tax Cooperation Agreement.
The new information-sharing agreement was made between UK and Switzerland and came into force on 1 January 2013. The agreement covers undeclared Swiss bank accounts held by UK residents. This agreement changes the way that banking will be conducted in Switzerland and the information sharing enables HMRC to find out about Swiss offshore accounts held by UK taxpayers.
What are the key features of the UK and Swiss agreement?
The UK and Swiss Tax Cooperation Agreement came into force on 1 January 2013. Below is a summary of the key features of the agreement:
- Individual UK taxpayers with accounts held in Switzerland will be subject to a one-off levy ranging between 21% and 41%, depending on a number of factors, including how long the funds have been held in Switzerland. This levy is intended to settle ‘historical tax liabilities’. Only accounts that have been open between 31 December 2010 and 31 May 2013 will be subject to the levy.
- A withholding tax will be introduced from 1 January 2013 on all income and gains derived from Swiss bank accounts. Investment income will attract 48% withholding tax, capital gains will attract 27% withholding tax and dividend income will attract a 40% withholding tax.
- Through the agreement, if HMRC suspects the possibility of a taxpayer having funds in Switzerland, they will be able to request the bank details of up to 500 named individuals each year for the first three years of the agreement. This figure will be reviewed annually from the beginning of 2016.
- If individuals choose not to come forward and disclose their holdings in Switzerland, they could face penalties of up to 200% of the amount owed as well as potential criminal investigation.
The UK and Swiss Tax Cooperation Agreement is an opportunity to regularise tax affairs related to Swiss assets; it is not a disclosure facility. Account holders should evaluate all options available, including using the Liechtenstein Disclosure Facility as this may be a better solution.
Who may be affected by the agreement?
Any UK resident with undeclared funds held in a Swiss bank account, trust or company in Switzerland will be affected by the agreement. If you have previously declared the income and gains from your Swiss bank account, you may still be affected by the agreement.
What options does the UK and Swiss Tax Cooperation Agreement provide?
There were two options detailed for UK holders of Swiss bank accounts:
Option 1: Pay a one-off levy and withholding tax
If account holders choose not to disclose their funds, a one-off levy payment to clear past unpaid tax liabilities will be deducted from the Swiss assets on 31 May 2013. The value of the levy is between 21% and 41%, depending on a number of factors including the time period that the account has been held and the balance increase over that period.
If you continue to do nothing, future income and gains will be subject to withholding tax each year from 1 January 2013 at a rate of 48% for investment income, 27% for capital gains and 40% for dividend income.
You may choose to authorise disclosure at any time in the future to avoid having the withholding tax deducted.
If Swiss authorities are not instructed to provide details of assets forming part of an estate following the death of a UK account holder, then a charge of 40% of the account balance will also apply.
Option 2: Authorise disclosure to HMRC
If you choose to authorise disclosure of your assets held in Switzerland, you will not be subject to a one-off levy payment or withholding tax.
You will however be required to declare all taxable income and gains, whether in the past or future, on your UK tax returns.
You should consider whether you can disclose through the Liechtenstein Disclosure Facility (LDF).
For more information, please visit the HMRC website.
What to do next?
If you have funds held in a Swiss bank account or trust, we would be happy to meet with you to discuss your options and review all alternates available.
We can assess your individual circumstances and advise on the best course of action and whether you may qualify for disclosure under the Liechtenstein Disclosure Facility, which may prove to be a better option for you.
Please contact us on 020 8780 2349 for more information and advice or to arrange a meeting to discuss the UK and Swiss Tax Cooperation Agreement.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.