HMRC Warning To Swiss Bank Account Holders

28.11.12

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

The start date for the new tax agreement between Switzerland and the UK, 1st January 2013, is fast approaching. HM Revenue & Customs has issued a factsheet to advise Swiss accoun

The start date for the new tax agreement between Switzerland and the UK, 1st January 2013, is fast approaching. HM Revenue & Customs has issued a factsheet to advise Swiss account holders of their options. Swiss banks are also beginning to write to UK resident clients.

Any UK resident with assets in Switzerland must either authorise disclosure to HM Revenue & Customs (HMRC) or lose a large part of their capital to new tax charges.

British expatriates should not be affected except perhaps if they have a Swiss bank account with a UK address. However this is a sign of the times and a reminder of the importance of being sure that your tax planning is fully compliant. Anything else could seriously backfire.

Switzerland has similar deals with Austria and Germany (though the German one is still going through parliament there). It is possible that other European countries will consider a similar agreement in future ? the Cyprus government has already mentioned it. The UK, Austria and Germany stand to earn a significant amount of revenue from their agreements. Other countries will be tempted as they struggle to reduce their deficits. It is better to take action now to ensure your tax affairs are in order, rather than risk waiting until it is too late. A wealth management firm like Blevins Franks, which has decades of experience advising British expatriates on legitimate tax planning, would guide you through your options.

HMRC factsheet

The factsheet explains that the Swiss/UK Tax Cooperation Agreement ?is designed to be an effective mechanism for HMRC to recover previously unpaid UK tax liabilities in respect of assets located in Switzerland.?

It gives the owners of Swiss assets two options:

  • Authorise their bank/paying agent to provide details of their Swiss assets to HMRC
  • Retain banking secrecy and pay a one-off tax charge, plus future withholding taxes on income and gains.

The one-off payment

If the UK taxpayer does nothing, a one-off payment will be deducted from their Swiss assets on 31st May 2013.

The tax rate will be between 21% and 41%, based on the capital and income/gains, length of time the account has been opened and rate of balance increase over the period.

The payment will clear the tax liabilities relating to the assets included in the figure of capital used in the payment calculation. In most cases this will be the account balance as at 31st December 2010 or 31st December 2012.

Amounts which taken out of the account before the relevant date may not be cleared, and so could still be subject to tax.

Future withholding tax

From 1st January 2013, income and gains will be subject to a withholding tax. The rate is 48% on interest, 40% on dividends and 27% on capital gains.

Where 35% withholding tax has been deducted under the Savings Tax Directive, a further 13% ?tax finality payment? will be paid to take the total to 48%.

Authorising disclosure

The only way the taxpayer can prevent the above taxes being deducted is to authorise the financial institution to disclose details of their assets to the Swiss authorities, for forwarding to HMRC.

This does not relieve them from their obligation (past or future) to include taxable income and gains on their UK tax return.

This authorisation can be after the agreement has come into force, to prevent withholding tax being deducted the following year.

Tax on death

Where the owner of assets held in Switzerland dies, a charge of 40% of the account will be deducted, to equate to their inheritance tax liability. This charge will not occur if the Swiss authorities are instructed to provide the UK with details of the assets.

HMRC warns that anyone who may have unpaid tax relating to Swiss assets should consider making a direct voluntary disclosure. This would bring their tax affairs up to date and provide certainty that they are in order. They may be able to use the Liechtenstein Disclosure Facility if entry conditions are satisfied.

Swiss banks

Some Swiss banks are writing to people who are recorded as being the owner of an account, or a relevant person in respect of trusts and foundations holding an account. Where an affected person does not receive a letter, they should contact their bank themselves.

The letters give clients the opportunity to authorise the bank to pass their details onto HMRC and therefore escape the tax charges. Anyone with a Swiss bank account needs to take action. It does not matter if they have been correctly declaring their Swiss assets in the UK, they still need to authorise their bank to share information now or they will suffer the tax charges.

Swiss banks have become keen not to appear to encourage tax evasion. It is reported that some banks may offer clients a different choice: authorise disclosure or close your account.

Seek advice from a firm like Blevins Franks to establish which is the most tax effective way to hold your wealth.

8th November 2012

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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