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The classic secret Swiss bank account will become considerably less hush-hush for some British taxpayers, following the initialling of an accord between the government and its counterpart in Switzerland.
The treaty aimed at tackling offshore tax evasion will see existing funds held by UK taxpayers in Swiss banks being subjected to a one-off deduction of between 19% and 34% to settle past tax liabilities. Switzerland’s financial institutions are to make an advance payment to the UK of £384 million, as an act of good faith to stress the significance of the new deal.
The differential rates will be determined by a formula that reflects the number of years of investment and the nature of the account movement. They will affect only individuals with an account that was open on 31 December 2010 and remains so 31 May 2013.
They will not be applied to a holder who instructs his or her bank to disclose details of the account to HMRC, after which move the department will seek unpaid taxes with relevant interest and penalties.
In 2013, a withholding tax of 48% will be introduced on interest income and 27% on gains. Although not in the official announcement, Taxation understands there will be a 40% charge on dividends. The rates are intended to be just under the ones at the top of the UK tax system, reflecting the earlier payment by deduction rather than ten months later under self assessment.
The accord also provides for an information-sharing provision to allow HMRC to each year ask for and receive the full details of Swiss bank accounts held by up to 500 UK taxpayers. The power will be in addition to, and goes further than, the provisions for data exchange under the UK-Switzerland double taxation agreement.
The Exchequer expects the new treaty – which the department called historic – to secure billions of unpaid taxes. Chancellor George Osborne hailed the end to abuse by the country’s wealthy individuals of Swiss banking, promising that the government will be ‘as tough on the richest who evade tax as on those who cheat on benefits’.
‘The days when it was easy to stash the profits of tax evasion in Switzerland are over,’ he said.
The Chartered Institute of Taxation added a note of caution. Gary Ashford of the professional body’s compliance reform forum, commented, ‘It is important to realise that innocent taxpayers who have always properly reported their Swiss income are at risk. They will need to make a further disclosure to avoid the deduction from their account balance.’
The terms of the deal with Switzerland – expected to come into force in 2013 – are considerably less favourable for UK taxpayers than the Revenue’s ongoing Lichtenstein disclosure facility (LDF), remarked Stephen Camm, tax partner at PricewaterhouseCoopers, although individuals must voluntarily give up their anonymity under the LDF.
BDO partner Fiona Fernie warned that the one-off payment will protect only income and gains still reflected in the account balance at December 2010, adding, ‘Amounts that passed through the accounts prior to that date, but were not included in the balance, will not be treated as taxed under the agreement, meaning they can be investigated later by HMRC.’
