The UK and Switzerland have reached an agreement which will see funds
in Swiss bank accounts taxed and the proceeds remitted to the UK
Treasury.

How it will work

From 2013 Swiss bank accounts of UK taxpayers in Switzerland will be
taxed at source and remitted to HMRC.  There will be a one-off levy on
the balance and there will be a withholding tax going forward.

The rate of the one-off levy will depend upon how long the account
has been open and will range from 19% to 34%.  This will apply to all
accounts which were in existence on 31 December 2010 and which still
exist on 31 May 2013 and will cover all past tax liabilities.  Where the
funds are removed from the Swiss bank accounts prior to 31 May 2013 the
tax treatment is presently unclear.  Announcements made to date do not
include any provision for taxing assets currently in an account but
which are moved before 31 May 2013.  This is contrary to the norm where
anti-avoidance provisions generally apply from the date of their
announcement.  So at the moment it seems that UK taxpayers have 2 years
in which to avoid this levy by moving their funds elsewhere.

From April 2013 tax will be withheld at source.  The relevant rates
will be 48% for interest income and 27% for capital gains and the
anonymity of the bank account holders will be preserved, unless the
account holder makes a voluntary disclosure to HMRC.

Should UK taxpayers with Swiss bank accounts make a voluntary
disclosure to the UK tax authorities they will not be subject to the
levy or the withholding tax.  Instead it is likely that HMRC will pursue
any outstanding taxes plus interest and penalties as applicable.

The position of non-UK domiciled taxpayers who hold Swiss bank
accounts is also unclear.  Although it has been suggested that upon
providing evidence of their non-domiciled status that they will not be
liable to this tax this has not been confirmed.  It is important that
this is clarified as many UK non-domiciliaries are not subject to the
remittance basis charge on foreign income repatriated to the UK.

One effect of this agreement with Switzerland, should it contain
anti-avoidance and/or tracking provisions, could be the movement of
funds to Lichtenstein.  Under the Liechtenstein Disclosure Facility
(“LDF”) taxpayers are only obliged to make a payment of back taxes from
1999/2000 and not on the total value of their assets, as is the case
under the Swiss agreement.  As the LDF includes interest and a penalty,
advice should be taken before a decision is made.

This agreement also contains a provision which will enable HMRC to
discover whether individual UK taxpayers have Swiss bank accounts.  The
number of requests is to be limited and cannot exceed 500 per year.

It is expected that the complete text of the agreement will be
published shortly.  We will provide an update once we have reviewed the
agreement.

Commentary

The rates at which the withholding tax will be applied going forward
are less than the current top UK tax rates for income tax (50%) and
capital gains (28%).  On the face of it, it looks like a great deal for
those wealthy enough to take advantage.

For further information or to discuss the issues raised, please contact John Mooney on +44 20 3051 5711.