UK taxpayers with undisclosed income in Switzerland can limit their penalties by move to Liechtenstein, expert believes

News - Tax

Written by Ray Clancy

Monday, 01 November 2010 10:07

There could be a rush of UK taxpayers, with undisclosed income in Switzerland, moving their assets to Liechtenstein to take advantage of lower penalties under the Liechtenstein Disclosure Facility (LDF), it is claimed.

Under the LDF, these UK taxpayers could pay a much lower tax rate on interest earned, while also limiting their tax liability to monies owed after April 1999 and the situation is particularly relevant for individuals who have inherited offshore accounts and who don’t have high income in the UK, according to Jeff Millington, director at BTG Tax.

‘The recent announcement in respect of the UK government reaching an agreement with the Swiss banking community is obviously a good thing from the UK PLC point of view. As it stands though it leaves more questions than answers and it will be interesting to see what the final agreement is. Like most things the devil could be in the detail,’ he said.

‘For a start if people are going to be allowed to “clean up” money inherited on an anonymous basis by paying a penalty, how much is that penalty likely to be? And what happens if you keep the offshore account and in later years you are investigated? What evidence will there be to show that a penalty was paid on the capital received? Therefore avoiding any further tax charge,’ he explained.

The main sticking point to this is likely to be the penalty. ‘If it is higher than 20% of the capital held then I would suggest anyone who has inherited money like this is still better off making a disclosure under the Liechtenstein Disclosure Facility. We are settling cases under this facility for a cost of between 15 and 20% of the total capital held,’ said Millington.

It is said that there will be a separate form of withholding tax that could be as much as 50% of the income/gains made each year. ‘This could be exceptionally high where you have an individual who did inherit that money and does not have high income in the UK. If the account was declared in the UK the tax could be as low as 20% on interest earned. Compare this to the 50% withholding rate. Again we have seen many cases where money was inherited a long time ago and the person who now has the account does not earn a great deal in the UK,’ he pointed out.

In addition to this, when considering the withholding tax going forward, taxpayers need to examine what, if anything, is going to be done about the previous years that have not been taxed. ‘An individual could soon be suffering withholding tax of 50% and still be the subject of a long and intrusive enquiry into the previous years, which can go as far back as twenty years,’ warned Millington.

Under the LDF a taxpayer could limit their tax liability to years commencing from 6 April 1999 onwards. ‘In addition to that, there is a guarantee of no criminal prosecution in relation to any tax evasion and once the account is disclosed it can be declared on the person’s return. This may not only help avoid a high withholding tax, but in some years might produce some allowable capital losses,’ he added.

‘What is clear is that if there were any UK taxpayers that still thought they could escape the ever lengthening arm of HMRC, this would seem to dispel that thought.’