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UK / Swiss Tax Agreement

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The UK / Swiss Tax Agreement will come into force on 1 January 2013. All UK residents that have assets in Swiss financial institutions are affected by the Agreement.

Purpose of the Agreement

The purpose of the agreement is to ensure that the correct amount of tax is being paid by UK taxpayers who hold assets in Switzerland. Under the agreement the UK is seeking to collect tax on assets held in Switzerland that have not previously been subject to UK tax via a one-off charge. In addition, HMRC are seeking to tax income and gains going forward by applying a withholding tax.

Who does this Agreement effect?

A ‘Relevant Person’ is an individual resident in the UK who is:

  • i) the account or deposit holder and beneficial owner of assets; or
  • ii) in accordance with the Swiss due diligence obligations, the beneficial owner of assets held by companies, institutions, foundations, trusts, fiduciary companies etc.

Which Swiss Financial Institutions need to implement the Agreement?

  • Banks under the Swiss Banking Act of 8 November 1934.
  • Securities Dealers under the Swiss Stock Exchange Act of 24 March 1995.
  • Natural or legal persons resident or established in Switzerland.
  • Partnerships and permanent establishments of foreign companies which accept, hold, invest or transfer assets of third parties.

What do the Swiss financial institutions need to do?

Stage 1

Identify Relevant Persons who hold assets with them.

Please note that individuals who have their principal private address in the United Kingdom based on the due diligence records of the Swiss financial institution are deemed resident in the United Kingdom for the purposes of this Agreement.

Furthermore, UK Passport holders will be deemed to be UK resident unless they can produce a tax residence certificate confirming they are tax resident in another jurisdiction.

Stage 2

Notify all Relevant Persons of the contents of this Agreement and their resulting rights and duties by 28 February 2013

Stage 3

Identify non-UK domiciled individuals.

A Swiss paying agent may only accept a relevant person as a non-UK domiciled individual when provided with a certificate produced by a lawyer, an accountant or a tax adviser who is a member of a relevant professional body confirming that the relevant person is not domiciled within the UK and has claimed the remittance basis of taxation for the tax years 2010/11 or 2011/12. Please note that WLH Tax can produce these certificates for clients. The certificate will need to be provided to the Swiss financial institution by 31 May 2013 in order to claim to be non-UK domiciled and avoid the one-off charge.

Stage 4

Pay one-off charge and future withholding tax to Swiss Federal Department of Finance

Options available to UK residents

UK Resident and Domiciled Individual

Option 1

Accept a one-off charge of between 21% - 41% of assets as at 31 December 2010 and future withholding tax.

Option 2

Authorise the Swiss financial institution to provide your details to HMRC and avoid the one-off charge and withholding tax.

Option 3

Transfer the assets to another jurisdiction before 31 May 2013.

UK Resident but non-domiciled Individuals

Option 1

Accept a one-off charge of between 21% - 41% of assets as at 31 December 2010 and future withholding tax.

Option 2

Authorise the Swiss financial institution to provide your details to HMRC in order to avoid the one-off charge.

Going forward the Swiss financial institution will provide HMRC with details of the annual UK source income/gains and remittances to the UK from the account(s). By providing this information to HMRC the individual will avoid the withholding tax.

Option 3

Disclose any omitted income and gains to the Swiss financial institution and accept a one-off charge of between 21% - 41% on only the omitted income/gains.

Option 4

‘Opt out’ - Inform the Swiss financial institution that you do not wish them to take any action.

Where an individual ‘opts out’ and it transpires there were UK tax liabilities that should have been subject to tax, HMRC will look to recover the tax due as well as enhanced penalties or consider criminal prosecution in the most serious cases.

Option 5

Transfer the assets to another jurisdiction before 31 May 2013.

The individual must inform the Swiss financial institution in writing by 31 May 2013 which option he or she chooses. If the individual fails to select which option by 31 May 2013 the Swiss financial institution shall proceed under option 1.

When is the one-off charge levied?

The one-off charge will be deducted from the accounts on 31 May 2013. The Swiss financial institution shall issue a certificate to the individual at the time the one-off payment is levied.

Who is the one-off charge paid to?

The one-off charge is paid to the Swiss Federal Department of Finance who transfers the funds onto HMRC.

Who calculates the one-off charge?

There is a complex calculation which needs to be completed by the Swiss financial institution to determine that rate of the one-off charge. The rate can vary from 21% to 41%. It is then incumbent on the Swiss financial institution to calculate the amount of the one-off charge and pay this to the Swiss Federal Department of Finance in Sterling.

What taxes are cleared by the one-off charge?

  • Income Tax
  • Capital Gains Tax
  • Inheritance Tax
  • VAT

The one-off charge also covers the interest, penalties and surcharges that would arise on the above.

Please note that the one-off charge does not cover Corporation Tax, Stamp Duty and other taxes not listed above. HMRC may still pursue taxpayers for liabilities they do not believe have been cleared by the one-off charge.

Risk of HMRC opening a Tax Investigation

It is important to note that the one-off charge only provides clearance on the amount which has been subject to tax. For example, if on 31 December 2002 an individual had £1m in a Swiss bank account, however over the years withdrawals have been made from the account to fund the individual’s lifestyle and at 31 December 2010 only £250,000 remains in the account on which the one-off charge is applied. HMRC reserve the right to open an investigation with a view to taxing the remaining £750,000 which remains untaxed.

Please also note that HMRC also reserve the right to pursue a criminal prosecution on the remaining untaxed funds as the Swiss Agreement does not provide taxpayers with immunity from prosecution (unlike the Liechtenstein Disclosure Facility).

Withholding Tax

Withholding tax will be applied to income and gains within Swiss accounts going forward. The rates applied are as follows:

  • 48% on Interest Income

  • 40% on Dividend Income

  • 27% on Capital Gains

  • 48% on Other Income

Non-UK domiciled individuals shall only be liable to the withholding tax in respect of UK source income and gains and non-UK income and gains which are remitted to the UK.

A separate withholding tax of 40% of the assets will be deducted on death in lieu of inheritance tax unless full disclosure of the assets is made to HMRC. The withholding tax will not apply if it can be certified that the deceased person was not domiciled within the UK and was not considered as deemed domiciled for IHT purposes in the UK.

Other options available to UK Taxpayers

Before individuals decide what option they wish to select, they should seek advice from a Tax Investigation practitioner to establish whether they may pay less tax if they make a voluntary disclosure to HMRC under the terms of the Liechtenstein Disclosure Facility (LDF). Please refer to the LDF pages of our website for further details on the benefits of this disclosure facility.

How can WLH Tax help?

WLH Tax has an experienced team of Tax Investigation practitioners who regularly deal with offshore disclosures to HMRC. We aim to provide a proactive service where we will assess your individual circumstances and determine whether the Swiss Tax Agreement or the Liechtenstein Disclosure Facility is the best route for you in order to mitigate your tax exposure.

We appreciate that this can be a stressful time and we endeavour to provide a comprehensive service to remove the anxiety associated with making a disclosure to HMRC.

In February 2006, money laundering reporting obligations for UK tax advisers were revised to give professional privilege to tax advisers who are a member of a UK professional tax or accounting body. This enables fully confidential discussions to take place either in the UK or overseas.

Call us now

Please call us today on +44 (0) 207 491 9690 or +44 (0) 207 491 9696 for an initial conversation to discuss how we can assist you. We are also happy to have an initial free of charge, without obligation, meeting with prospective clients.