Swiss Banks To Tax UK Accounts. Is This Just The Start?

23.09.11

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.

In a landmark deal Switzerland has agreed to start deducting tax from all accounts owned by British taxpayers for the UK government. The agreement is expected to come into force at t

In a landmark deal Switzerland has agreed to start deducting tax from all accounts owned by British taxpayers for the UK government. The agreement is expected to come into force at the beginning of 2013 and to earn the Treasury up to ?6 billion a year. The deal takes precedence over the EU Savings Tax Directive and covers shares, commodities, dividends and capital gains as well as savings income.

There are three key elements to the agreement ?

1) Withholding tax

Unless clients authorise their Swiss bank to disclose their account to HM Revenue & Customs (HMRC), a final withholding tax will be levied on bank interest and investment income at 48%; on dividends at 40% and on capital gains at 27%. It will be paid anonymously to HMRC.

2) Retrospective tax

Account holders either have to fully declare their Swiss bank accounts to HMRC (and so pay back tax, interest and penalties), or a ?regularisation payment? will be deducted from their account. This will be between 19% and 34% – so potentially a third of their capital – depending on the type of assets; how long the account has been open and the initial and current amount of capital. Customer information will remain confidential.

3) Information requests

HMRC will be able to submit up to 500 information exchange requests to the Swiss authorities each year and the Swiss banks will have to respond, regardless of whether the individual in question consents or not. HMRC will only need to name the suspected tax evaders; it does not have to name their bank.

Germany has agreed a similar treaty with Switzerland and there have been calls in Italy to open talks. The deals could bring in several billion Euros in 2013 for European governments, just as they are struggling to reduce their deficits to 3%, so it is possible that other indebted European countries will follow suit. The deals suit Switzerland since it gets to retain banking secrecy and it is reportedly hoping for a ?snowball effect?. Some countries like France however have so far said they will continue to actively combat tax evasion instead and hold out for automatic exchange of information across the EU and third countries like Switzerland.

Some people may consider moving their money out of Switzerland ? but where to? The quality of services available and level of deposit guarantee may be inferior. In any case it is dangerous to rely on banking secrecy anywhere in the world these days. Jurisdictions could come under much international pressure if they readily accept funds transferred for the purpose of evading tax. Any financial centre looking to establish a respectable reputation will slowly give in to international demands for transparency.

While the UK and German tax deals may fall short of the ultimate prize of automatic exchange of information, they provide a very lucrative temporary measure until such time as there is full disclosure of information. The deals have hammered another nail into the coffin for banking secrecy. The only way to lower your tax bill is through professional guidance and legitimate tax planning arrangements.

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 must 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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