Swiss Banks To Tax UK Accounts


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In a landmark deal Switzerland has agreed to start deducting tax from all accounts owned by British taxpayers for the UK government. All UK domiciled tax residents who have not decla

In a landmark deal Switzerland has agreed to start deducting tax from all accounts owned by British taxpayers for the UK government. All UK domiciled tax residents who have not declared their Swiss bank account to HM Revenue & Customs (HMRC) will lose up to a third of their Swiss accounts to the taxman and face tax of 48% on future earnings. The Treasury says the agreement ?will resolve the long-standing abuse of Swiss banking secrecy?.

The UK and Swiss governments agreed to negotiate a deal in October last year and discussions started in January. After months of speculation the agreement was initialed by the authorities on 24th August and the details announced. It will be formally signed in the coming weeks.

It is the latest step in the UK government?s crackdown on offshore tax evasion, which includes a new dedicated team of investigators to catch those hiding money offshore. Chancellor George Osborne said: ?Tax evasion is wrong at the best of time, but in economic circumstances like this it means that hard-pressed law-abiding taxpayers are forced to pay even more?.

Britons are estimated to have up to ?125 billion of undeclared assets in Swiss bank accounts and the British government is expected to earn around ?5 billion (potentially up to ?20 billion) initially and then between ?3 billion and ?6 billion a year.

Treasury sources said the income will be used to reduce the government deficit and not to cut taxes in Britain.

The agreement is expected to come into force at the beginning of 2013, following scrutiny by Parliament and ratification procedures in Switzerland.

There are three key elements to the agreement –

1) Withholding tax

With effect from 2013, a final withholding tax will be levied on any investment income and capital gains earned in Swiss financial institutions.

Bank interest and investment income will be taxed at 48%, while dividends will be taxed at 40% and capital gains at 27%.

This does not apply to anyone who authorises their bank to disclose their account to HMRC and declares and pays tax on the capital on their UK tax return.

It is understood that the Treasury pushed hard for a rate close to its 50% top rate of income tax to remove the financial incentive of hiding assets in Switzerland.

2) Retrospective tax

While the withholding tax covers future earnings, account holders will also have a ?regularisation payment? deducted from their account to make up for past transgressions.

They will be given a choice of making a full disclosure of their banking affairs to HMRC, therefore paying the back tax, interest and penalties, or having their bank make a one-off payment anonymously on their behalf. The latter option is only available if the account was open on 31st December 2010 and still open on 31st May 2013.

The retrospective tax will be between 19% and 34% – so potentially a third of the account – depending on the type of assets; how long the account has been open and the initial and current amount of capital held in the account.

Swiss banks have agreed to pay 500 million Swiss Francs (around ?385m) in advance. This ensures a minimum income and shows they are resolved to implementing the deal.

With both the retrospective and withholding taxes, no details of who paid the taxes will be given to the UK. Account holders will however be given a certificate from their bank to prove they have paid the tax.

3) Information requests

The two taxes will be accompanied by a new information sharing arrangement ? ?a powerful new provision? according to the Treasury – which will make it easier for HMRC to find out about Swiss bank accounts held by UK taxpayers.

Going further than the existing double tax treaty, HMRC will be able to submit up to 500 information exchange requests from 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 name the suspected tax evader, it does not have to name their bank.


Some account holders may have been hoping that the agreement would include some sort of amnesty, but this is not the case. Even after having the retrospective and withholding taxes deducted, they could still be the target of an HMRC tax investigation if they have not actually owned up about their account to the UK taxman. While credit would be given for the tax they will have then paid, they would still be liable for interest and penalties and could be prosecuted for tax evasion.

Permanent Secretary for Tax at HMRC, Dave Hartnett stated:

?The world has changed for tax evaders. A few years ago, nobody would have anticipated that we would conclude an agreement with Switzerland to tackle tax evasion??

He also went on to state that:

?Our strategy is working. We will secure significant sums of tax that some had thought we would never see.?

Germany has signed a similar deal with Switzerland and the idea has been raised in Italy. I would not be surprised if other European countries followed suit as they look to increase tax revenue to reduce their deficits.

The only way to lower your tax bill is through professional guidance and legitimate tax planning arrangements. For reassurance that you are not paying more tax than you need to and that your tax planning is compliant, speak to a tax and wealth manager like Blevins Franks.

The above information is based upon current taxation laws and practices which may be subject to change.

By Bill Blevins, Managing Director, Blevins Franks

29th August 2011

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.