Swiss and UK tax deal chips away at anonymity
The recent tax deal between Bern and London still allows UK taxpayers with undeclared Swiss accounts to remain anonymous, but a lawyer says finer details contained in the agreement published last week suggest opting for secrecy will generally cost them more in the long run.
James Badcock (pictured), partner in Geneva with UK-headquartered firm Collyer Bristow LLP, said: “If it is important for clients, for whatever reason, to maintain their anonymity, they have to accept an automatic one-off tax charge on their account to deal with presumed historical liabilities and they will have to accept an automatic withholding tax on future income and gains.
“More often than not that option will cost you more in tax terms than if you allow your identity to be revealed or make a pre-emptive disclosure.”
When the two nations initially struck the agreement in August, experts said a quid pro quo for having Swiss ‘paying agents’ collecting and remitting amounts owed to the UK, was that identities of Swiss account holders would remain secret.
Affected UK taxpayers can still elect to take this path.
The alternative is to allow their details – banking and personal – to pass to London and to self-assess both previous and ongoing UK tax bills.
However, if they opt for this route, then the taxpayer will face the full consequences of having failed to declare taxes in the past. The agreement affects a broad range of cash and investment accounts with banks and other bodies, Badcock said.
When the agreement comes into force, expected in early 2013, the one-off charge for historic liabilities will be 19% to 34% of the value of the account, while the ongoing withholding tax would be levied at a rate of 40% for dividends, 48% for other income, and 27% for gains.
Badcock explained, “What is clear is, even if you are someone who is now completely compliant and has always paid your tax, in order to avoid the UK government having a second payment from you in the form of this one-off payment, you are going to have to accept having full information about your account for the last 10 years disclosed to the UK.”
Badcock added a number of other matters had become clearer, including treatment of account holders who are UK resident, but non-domiciled in the UK.
Although the agreement is not entirely clear on the point, it seems to allow those who use the remittance basis of taxation to elect to side-step the historic and future charges, while retaining anonymity.
As these and other ramifications of the agreement are still becoming clear, but were complex, Badcock said it made sense to consult advisers.
News of the less favourable treatment of those choosing anonymity came on the same day HMRC reminded about 6,000 Swiss account holders with Great Britain’s largest bank that they could face paying 200% of tax they owed, if they did not take advantage of a tax amnesty.
UK taxpaying holders of Swiss accounts will still be able to use the ‘Lichtenstein Disclosure Facility’ (LDF). Under it, they account for all tax due for 10 years from 1999 plus a penalty of 10% of the total due.
Badcock said HMRC has a team dedicated to help clients taking this option, with the ability to discuss cases on a no-names basis before going ahead with a disclosure. After disclosing, the taxpayers enjoy immunity from prosecution.
“The team can discuss [with taxpayers] how the LDF would apply and they are often interpreting it in a way helpful to the taxpayer. The Revenue’s priority seems to be not so much to collect as much as they can for historical liabilities, but to get the taxpayer on their books. In the long term that will be more valuable.”
He said if Revenue investigated UK taxpayers’ Swiss accounts before 2013, those affected could not raise as a defence that they were waiting to be subject to the Swiss agreement, in two years’ time.
“One can see the strategy of the Revenue as being that the threat of the full force of this agreement, arriving in 2013, will flush out people who would be concerned about its impact. Banks are telling me that the majority of their non-compliant clients are now approaching them about rectifying this.”
Badcock said deals being struck also effectively mean Swiss financial institutions will be able to rely ever less on advantages of low tax and anonymity Switzerland historically offered.
Many holders of smaller accounts might simply move ‘onshore’, he said.
“For larger accounts it will make more of a difference to people how their money is being managed, or Switzerland being more secure. But that will now come down to whether the Swiss firms are able to convince clients either that they are offering performance and service that they could not get anywhere else, or that Switzerland as a jurisdiction is a safer place to have money than the UK, or places like Hong Kong.
“If you are non-domiciled there are considerable tax advantages in having your money outside the UK – but you could have a relationship with a banker in London with accounts held in Jersey.
“For a UK domiciled taxpayer there has never been a legitimate tax advantage in having your money in Switzerland as opposed to the UK. It is just that some people have not declared their liabilties in Switzerland and it has been difficult for the UK authorities to find out about this.”