Under the terms of the Swiss/UK Tax Cooperation Agreement, most UK-resident holders of Swiss accounts were offered a simple choice between authorising the disclosure of their Swiss assets to HMRC or paying a one-off withholding tax in respect of “the past” and further withholding taxes in respect of future income and gains. While there was in theory an 18-month gap between the signing of the Agreement and the deadline for making that choice of 31 May 2013, the issue was brought to the attention of many account holders very late in the day and they were rushed into making a decision without an opportunity to take proper advice or even think things through properly.
Mind the gap
Despite appearances to the contrary, in many cases payment of the one-off withholding tax left a gap when it came to covering past tax liabilities associated with the account. HMRC guidance states that payment will clear liabilities to income tax, capital gains tax, inheritance tax and VAT to the extent that these relate to figure for capital used for the calculation (i.e. the account balance at either 31 December 2010 or 31 December 2012). It does not cover:
1. Liabilities to other taxes, most notably corporation tax (relevant if the monies deposited in the account were extracted from a UK company); or
2. Liabilities attaching to monies that had previously been withdrawn from the account and were not included in the figure of capital.
Clearly there will be cases (for example, those where the funds in Switzerland have sat untouched for decades) for which the certificate of payment of the withholding tax represents complete clearance. More common, however, will be those who have paid a significant sum in withholding tax and who would still be viewed by HMRC as non-compliant.
Upgrading to full disclosure
We have been approached by a steady stream of individuals who now want a clean slate with HMRC. In many cases they would have been better advised to make a full disclosure in the first place rather than pay the Swiss withholding tax, but in general the clock cannot be wound back. It is therefore a matter of making a formal disclosure – typically under the Liechtenstein Disclosure Facility (LDF) – that deals with the outstanding liabilities. The Swiss payment is accepted as “franking” the liabilities with which it is explicitly associated, leaving the impact of any withdrawals from the account and any other liabilities to be dealt with. The interaction of the LDF and the Swiss Agreement can in some cases mean that there is no further tax to be paid, but it is still necessary to go through the process if clearance is to be gained.
The trigger for Swiss banks to write to account holders was the presence of a UK address on their systems. There will be UK taxpayers who, deliberately or otherwise, have escaped the imposition of withholding taxes by using an overseas correspondence address. These individuals remain very much exposed to the risk of HMRC investigation (and the possibility of criminal prosecution). If you fall into this category you should seek advice on your options as a matter of urgency (again, the LDF may be the most attractive route).
Those who signed up to the deduction of withholding taxes are not exempt from declaring Swiss income and gains on their UK tax returns. The associated liabilities may be covered by the tax, but a return missing this information is still incomplete. HMRC have also recently made the point that, while the one-off withholding tax covers any liability to Inheritance Tax in respect of the Swiss assets where the accountholder died before 1 January 2013, the existence of those assets may have an impact on the tax payable in respect of the rest of the estate. They must therefore be disclosed to HMRC and the Inheritance Tax office must be provided with a copy of the clearance certificate from the Swiss bank.
This article does not address the rather more complex position of those who are not domiciled in the UK and who are claiming the remittance basis of taxation.
If you have any doubts about your position vis-à-vis the Swiss Agreement you should take appropriate professional advice now.