The UK is about to close a deal with Switzerland to tax UK citizens on money held in secret Swiss bank accounts. Switzerland and the UK are about to agree that Brits with Swiss bank accounts will pay tax at 50%. The Swiss will deduct the tax and pay it over to HMRC. Brits may also be able to “legitimise their undeclared assets” by making a payment in respect of back taxes to the UK taxman: according to a report by Vanessa Houlder in the Financial Times.
It’s widely reported that about 15,000 British residents have Swiss bank accounts, holding assets of up to £125 billion.
Under the deal, HMRC expect to collect about £1bn a year. There could also be a bumper windfall for the exchequer if UK taxpayers sign up to pay a one-off retrospective levy in respect of “back duty” tax: probably based on a percentage of funds held.
At first this looks like an opportunity for some tax evaders to sanitise secret accounts on a “no names” basis. But there is likely to be some follow up action from HMRC in still hunting down offshore fund holders. And there is a risk that the one-off levy could be harsher than paying the actual tax: particularly when compared to the very favourable terms of the current tax amnesty: The Liechtenstein Disclosure Facility. According to the FT report the UK is considering extending the LDF by a year, to 2016, allowing well informed taxpayers to choose between the Swiss deal and the LDF: as long as they are not investigated in the mean time.
Switzerland’s famed banking secrecy – which is actually a tightly observed system of bank-client confidentiality known as Das Bankgeheimnis – will be partially retained. However, the Swiss banks may have to disclose details of individual bank accounts, if the taxman believes they were used to evade UK tax. In any event it is unlikely that the Swiss deal will slow down the momentum of HMRC’s recent successes in getting hold of secret Swiss bank data from other sources (e.g. disgruntled or avaricious ex-employees). Indeed, the UK recently gave a commitment to The European Commission to remain committed to exchange of information.
Many British residents will have these accounts for wholly legitimate purposes. For example in our experience many members of the UK Jewish community had Swiss bank accounts for historic reasons: not trusting any other countries’ bank accounts when their forefathers fled the pogroms in Russia and Germany for instance. Many UK Indians originated from African states such as Uganda. They often looked to the Swiss banks as safe havens. Swiss bank accounts have been popular with people seeking good quality wealth management, often preferring the Swiss’ conservative investment policies in contrast to the reckless policies of some UK and American banks. And of course Swiss accounts have always been popular with non-Doms: who until recently would not have been taxed on income arising there anyway.
HMRC however believe that many Brits have used Swiss banks to hide tax evaded profits and to accrue income without paying tax. They also believe that thousands of non-domiciliaries who have not elected to pay the Remittance Basis Charge should now be declaring their Swiss income.
Having got a deal with Liechtenstein to open their books about Brits banking there, this soon to finalised Swiss deal is another feather in the taxman’s cap. Combined with the new 200% penalty regime for tax evaded using offshore bank accounts, and the naming and shaming provisions, the UK tax inspectors feel that that they are closing a chapter on offshore tax evasion. HMRC are putting massive efforts into encouraging anyone with offshore bank accounts to reveal them now as part of the Offshore Bank Account Tax Amnesty. This is confusingly known as the Liechtenstein Disclosure Facility – even though people with offshore assets anywhere in the world (and not just Liechtenstein) can use it: and obtain highly favourable terms of settlement to bring their tax affairs out of the dark and up to date.
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