UK Holders of Undeclared Swiss Bank Accounts Face Large Tax Bill

On 6th October 2011 the UK and Swiss Governments signed a deal to tax undeclared Swiss Bank Accounts. It affects account holders resident in the UK, holding a UK passport or who have given the Swiss Bank a UK address.

On 6th October 2011 the UK and Swiss Governments signed a deal to tax undeclared Swiss Bank Accounts. The agreement had been reached and initialed on 24th August 2011. It affects any individual who is resident in the UK, or has given the Swiss Bank the UK address, or holds a UK passport.

HM Revenue & Customs (HMRC) describe it as a “breakthrough tax agreement”. It is expected to raise billions of pounds for the Treasury.

Under this agreement, Swiss bankable assets will be subject to a one-off levy of between 19% and 34%. The amount of the levy per individual will depend upon how long the assets have been held as well as their value. There will also then be annual withholding taxes applied by the Swiss bank and paid over to the UK Government.

If you seek to move the bank account out of Switzerland, the one-off levy is applied immediately.

For the purposes of the levy, bankable assets include currency, precious metals, shares, bonds and structured products.

There is an option to avoid the levy by disclosing to HMRC the bankable assets held in Switzerland and paying any unpaid taxes up to date.

In future, the annual withholding taxes will be 27% for capital gains, 40% for dividends and 48% for income.

The days for the Swiss banks conspiring with UK residents to evade taxes are well and truly over.

These new withholding taxes will also apply to non UK domiciled individuals unless they can prove that they can opt out under remittance basis. To qualify as a non-UK domiciled individual, a person must have their domicile status certified by a professional lawyer, accountant or tax agent.

If you are a UK resident or domiciled individual holding relevant Swiss bankable assets, the UK/Swiss agreement appears to represent a good opportunity to settle past unpaid UK taxes on these assets. Your account will have to have been open on 31st December 2010 and still open on 31st May 2013. You may also want to look at the a Liechtenstein Disclosure Facility (LDF) since that can result in significantly lower settlement of about 10%, as against the one-off levy in the region of 19% to 34%.

Besides the one-off levy and annual withholding tax, the agreement includes a “powerful new provision” for HMRC to discover whether an individual taxpayer has an account in Switzerland. This goes further than the provisions for information exchange under the current UK-Switzerland Double Taxation Agreement. HMRC will now be able to request banking details on 500 people each year, and the number could be increased in future.

There is a powerful anti-abuse clause to prevent the promotion of avoidance by Swiss banks.

Switzerland will collect data on the destination of any funds withdrawn from the country following the agreement and will share the data with the UK authorities. This will help HMRC target future compliance activity.

A programme of audits, overseen by a new UK-Swiss joint commission, will ensure that Swiss banks comply with all their obligations.

The UK/Swiss tax agreement is expected to come into force in 2013.

Exchequer Secretary, David Gauke, said:

“This is an excellent agreement which tackles a problem many people thought would never be solved. Working with the Swiss Government we have delivered a highly effective solution which will benefit both countries and recover billions of pounds of unpaid tax for the UK.“

HMRC Permanent Secretary for Tax, Dave Hartnett, warned:

“The world is shrinking fast for offshore tax evaders and this agreement will ensure that we know where money that flees Switzerland is heading. We won’t be far behind.”

This UK/Swiss agreement follows a blueprint struck with Germany to regulate untaxed funds. It is expected that other jurisdictions, other than the UK and Germany, will enter into similar agreements with the Swiss.

Banking secrecy has helped Switzerland build up a $2 trillion offshore sector. However the country has been facing an international campaign against offshore tax evasion from governments needing to raise revenue to plug their budget deficits. The Swiss banks will continue to lose substantial funds as result of these new disclosures. There is no point in having a Swiss bank account if you have to pay tax on it.

By David Franks, Chief Executive, Blevins Franks

7th October 2011

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.