Gabelle Tax Analysis: Swiss UK Tax Agreement to come into force on 1 January 2013

The Swiss UK tax agreement is going ahead and will come into force on 1 January 2013, as planned. UK residents with assets under Swiss management should now ensure that their affairs are in order and that they understand the options available under the terms of the agreement.

The agreement was ratified in the UK in July via Finance Act 2012. Swiss opponents hoped that the agreement would be scuppered by calling for a referendum. The deadline for gathering the 50,000 signatures necessary to force the Swiss Government to hold the referendum was 2 October 2012 and it was announced this week that the opponents had failed to gather sufficient signatures – albeit only by a few thousand.

The European Union is opposed to countries entering into bilateral agreements and has criticised the Swiss UK tax agreement because of its detrimental effect on the EU’s attempts to enforce the automatic exchange of information between states. It is uncertain, however, whether the EU can take any meaningful steps to block the agreement before it comes into force.

There will be a limited number of options available to UK residents with Swiss assets:

  • Agree to their financial intermediary disclosing the assets to HMRC and utilise the LDF to sort out the past;
  • Agree to the financial intermediary disclosing the assets to HMRC and then make a voluntary disclosure to HMRC;
  • Pay a flat rate tax for the past (between 21% and 41%) and withholding taxes going forward;
  • Opt out and claim the remittance basis charge; or
  • Move funds out of Switzerland before 31 May 2013.

It is essential that individuals with Swiss assets fully understand the implications of each of these options before a decision is made. One point that has come to light from discussions with HMRC is that individuals do not automatically regularise the past by paying the flat rate tax. In some circumstances, HMRC may seek to undertake a criminal investigation.

Under the terms of the agreement HMRC can make 500 requests to the Swiss authorities for information about a UK resident believed to have Swiss assets. There is therefore an increased risk that UK residents with links to Switzerland will find themselves under the glare of an HMRC enquiry.

John Hood is a Director at Gabelle LLP. He can be contacted at john.hood@gabelletax.com or via TaxDesk on 0845 4900 509.

Noel Hankinson is a Tax Investigation Consultant at Gabelle LLP. He can be contacted at noel.hankinson@gabelle.com or via TaxDesk on 0845 4900 509.