I have heard about a 31st May 2013 deadline in respect of the disclosure of Swiss Bank Accounts. If you have a Swiss Bank account, what do you need to do before this deadline?
UK residents who have undisclosed assets in a Swiss bank account have two options prior to the 31st May 2013. They can either disclose income and gains to HMRC under the Liechtenstein Disclosure Facility (LDF). Alternatively they have the option of instructing the bank to make a one off deduction from the account under the UK/Swiss Tax Co-operation Agreement (TCA).
Where the one-off deduction is applied, it will be a fixed percentage of the balance held in the account ranging from 21% to 41%. Whilst some individuals may like the anonymity that the one-off deduction provides, it is recommended that they consider making a disclosure to HMRC in order to regularise their past tax affairs. Those that do not make a disclosure will be forced to regularise under the TCA.
The one-off deduction will be treated as fulfilling the UK tax obligations of the individual for the funds held in the account. However, where income and gains have previously been taken out of the account, they will not be regularised by the one-off payment, so the individual will still have a compliance issue that needs to be resolved.
A common factor with balances held in Swiss accounts is that they consist to some extent of funds that are not liable to UK tax or have already been taxed in the UK and thus are not required to be taxed further. The one-off deduction can therefore be an expensive choice when compared to the actual UK tax liability arising on any undisclosed income and capital gains, even after taking into account penalties and interest.
The LDF offers the most beneficial penalty rates and also protects the individual from prosecution as long as the funds are not the proceeds of crime, as opposed to other disclosure routes that are available.
There are certain conditions to qualify for the LDF, but the majority of individuals are able to satisfy these by opening an account with a Liechtenstein bank.
HMRC has received information of offshore bank accounts that they are now working through. The disclosure facilities now offered by HMRC presents an ideal opportunity for individuals to regularise their past tax affairs and large numbers are doing just that. It is a relatively easy process and, once completed, a good night’s sleep could be a welcome reward.