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The much-discussed tax agreement between the UK and Switzerland, announced in late August, was signed in London yesterday. It will come into force in 2013 following scrutiny by Parliament and after ratification procedures in Switzerland.
Swiss bank accounts held by UK individuals will be subject to a one-off deduction of between 19% and 34%, as long as the account was open on 31 December 2010 and remains so on 31 May 2013. The levy will settle income tax, capital gains tax (CGT), inheritance tax and VAT liabilities in relation to the funds in the account.
The deduction will not be applied if the account holder instructs the bank to disclose to HMRC details of the account – although following such a measure, the Revenue will seek unpaid taxes with relevant interest and penalties.
As a general principle, where there has been no payment of tax under the treaty in respect of a particular source, there will be no protection from normal interest and penalties.
In addition, from 2013, a new withholding tax of 48% on interest, 40% on dividends and 27% on gains, applying to those who have not previously told the taxman about their assets, will satisfy UK tax liabilities on the relevant income and gains.
The new charges will not be relevant if the taxpayer authorises a full disclosure of their affairs to HMRC. The levy on gains has been described by the Revenue as ‘approximating to the rules for calculating CGT’, because the Swiss financial institution may not have the information to calculate CGT accurately.
For example, if the cost of an asset is not known by the institution, it is to be treated as the 31 March 1982 market value if held at that date (or the market value, if acquired later), or nil if the market value is not known.
Other terms of the UK-Switzerland tax agreement include:
- An anti-abuse clause to ensure that if a bank promotes schemes for avoiding the withholding tax due under the agreement, the bank itself will become liable for the tax avoided.
- A provision that will allow HMRC to discover whether an individual UK taxpayer has an account in Switzerland. The power is in addition to, and goes further than, the provisions for information exchange under the two countries' double taxation agreement. Details on up to 500 individuals a year will be asked for initially, but the number will be increased or decreased in future dependent on how successful the initiative is in identifying untaxed funds, whether in Switzerland or elsewhere.
- The Swiss authorities will give HMRC information about the top ten destinations that they identify as places to which money is moved. This will help the taxman target future compliance activity.
Taxpayers who are under inquiry by the Revenue when the treaty enters into force, or who have been successfully prosecuted as a result of a departmental criminal investigation, will not be eligible for clearance of past liabilities.
The same applies for those involved in criminal attacks on the tax system, for anyone whose Swiss assets are the proceeds of non-tax crime, and for any person who has failed to disclose Swiss assets when challenged. Where a taxpayer comes within an excluded category, any levy paid to the UK will be treated as a payment on account.
The agreement contains specific provisions covering the position of resident but non UK domiciled individuals. To qualify as a non-UK domiciled individual, a person must claim the remittance basis, and their domicile status must be certified by a professional lawyer, accountant or tax agent.
Finally, a joint commission will be established to oversee the agreement and to make recommendations for future changes. Aggregated data on the outcomes and main findings of audits undertaken by the Swiss authorities will be made available for publication.
