UPDATE: Please see Eaves and Co’s Swiss Treaty Brochure for full details of the treaty
As the timeframe moves closer for the UK Swiss Treaty to come into operation (1 January 2013) there have been some further changes to its terms.
On 18 April 2012 the UK and Switzerland exchanged letters with the outcome being that the minimum rate payable on capital through the treaty has been raised to 21%.  The upper rate also being raised and to 41%.

switzerland
Switzerland (Photo credit: siette)

Clearly this makes the UK Swiss Treaty even less palatable, with some commentators saying that only people wishing to remain anonymous should suffer the levy.  However, an initial professional consultation for anybody considering the matter remains a necessity in considering the alternative routes to redress of their tax position.

UPDATE: Please see Eaves and Co’s Swiss Treaty Brochure for full details of the treaty

The UK and Swiss governments have now signed the long awaited UK-Swiss Confederation Taxation Cooperation Agreement. The new treaty still has to be ratified before coming into effect, but is expected to be fully effective from 1 January 2013.

The treaty will generally apply to UK taxpayers who held a Swiss account as of 31 December 2010 and where the account remains open as of 31 May 2013. Non-UK domiciliaries will have to prove, by way of a certification by a lawyer or tax agent that they have claimed the remittance basis of taxation for the year in question, and give notice to opt-out of the agreement. Under the terms of the agreement, UK taxpayers may either:

1) Retain anonymity and suffer an initial one off deduction of between 21-41%, or

 2) Make a voluntary disclosure to HMRC regarding their Swiss assets and income.

Option 1

There will be an initial one-off deduction, in order to settle past tax liabilities, of between 21% and 41% applied to the balance of a UK resident’s existing Swiss accounts as of 31 December 2010.

The rate charged depends upon the number of years of investment and the account movement. It is estimated that the applicable rate will be 22-28% for most taxpayers.

 In addition to this from 2013 there will be a withholding tax of 48% on interest income, 27% on Capital Gains, and 40% on dividends.

Taxpayers who pay the levy and withholding tax will be able to retain anonymity (subject to EU approval).

Option 2

Alternatively the taxpayer can make a full disclosure of untaxed Swiss income and gains to HMRC. HMRC will then seek unpaid taxes, interest and penalties from this disclosure.

If a disclosure is made, the taxpayer’s accounts will not be subject to the one off charge and future withholding tax. However the taxpayer must inform their banks that they have chosen to disclose otherwise the one-off levy will be automatically applied.

 What to do now

 It is likely that UK persons with undisclosed Swiss income will need to contemplate whether to make a disclosure or pay the one off levy and suffer the withholding tax moving forwards.

Disclose

There is no specific disclosure facility contained within the Treaty, so HMRC will levy penalties at normal rates on any liabilities disclosed. HMRC can assess such tax liabilities for up to twenty years so the total cost of tax, interest and penalties could be very high.

A more generous disclosure opportunity is available using the Liechtenstein Disclosure Facility (LDF). The LDF provides certainty of settling past worldwide tax issues, with liabilities being limited to those arising after April 1999, and with a set 10% penalty rate for years up to 5 April 2009. More importantly, the LDF provides immunity from prosecution.

Pay the Levy and Withholding Tax

The one off charge is levied on the value of Swiss funds as of 31 December 2010 and therefore only clears tax liabilities associated with those funds and therefore does not guarantee that all past Swiss liabilities will be settled.

 As a result it does not offer immunity from prosecution but does however ensure that anonymity is retained.

Move Assets to another Jurisdiction

It is possible to move assets to another jurisdiction before the 31 May 2013 to avoid the regime; however Swiss banks will be providing information to HMRC on the top ten destinations where funds are being moved. If the taxpayer is subsequently caught they will be liable for tax due going back to 20 years, penalties of up to 200%, public ‘naming and shaming’ and the risk of prosecution.

How Eaves & Co Can Help

Based on the LDF’s that Eaves & Co have already made for clients, the average cost is around 17% of the account value at the time of the disclosure. This is less than the 21%-41% levied under the Swiss Tax Treaty; however each case will need to be judged on its own merits.

In order to establish the best option for the individual involved it would be useful to undertake a technical review to compare the net costs of both options. Eaves & Co would be happy to have a no names discussion (so as not to contravene the money laundering rules) to discuss the options available in more detail to anyone feels they may be affected.

UPDATE: Please see Eaves and Co’s Swiss Treaty Brochure for full details of the treaty
After much anticipation, details of the treaty between Swiss Federal Department of Finance and the UK Treasury aimed at tackling offshore tax evasion were announced on 24 August 2011.
Broadly speaking there will be two routes to go on under the agreement:
1) Retain anonymity via making an initial one off payment and paying withholding tax from 2013 or;
2) A voluntary disclosure to HMRC regarding Swiss assets and associated income
Option 1
If option one is chosen there will be an initial one-off deduction of between 19% and 34%, on a UK resident’s existing Swiss accounts which were open on 31 December 2010 and remain so on 31 May 2013. This deduction is in order to settle past tax liabilities.
The rate charged equation accounts for the number of years of investment and the account movement. It is estimated by the Swiss Banking Association that the applicable rate will be 20-25% for most taxpayers.
In addition to this from 2013 there will be a withholding tax of 48% on interest income and 27% on Capital Gains, with the level of withholding tax for dividends to be announced later.
Option 2
Alternatively the UK resident can make a full disclosure of untaxed Swiss income and gains to HMRC.  HMRC will then seek unpaid taxes, interest and penalties from this disclosure.
If a disclosure is made, the accounts of UK taxpayer will not be subject to the one off charge and future withholding tax.
A disclosure under this option could be made under the Liechtenstein Disclosure Facility (LDF) which may offer reduced penalties.
Conclusion
It is clear then that this deal will have a big impact on UK residents with a Swiss account. Possibly affected taxpayers should consider which option might be most beneficial.   This will require calculating the effect of both options on their funds.  This initial assessment exercise will be very important and may not be straightforward.
If you would like to discuss the impact of the treaty further or would like help deciding which option to choose please feel free to contact us in our Leeds office.