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Changes to the Liechtenstein Disclosure Facility

7th Dec 2009
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1 December 2009 marked a significant milestone for the LDF. Fiona Fernie outlines the changes.

On 11 August 2009, in an unprecedented move, HMRC introduced the Liechtenstein Disclosure Facility (LDF). When it opened on 1 September 2009 only UK investors who held bank accounts and other investments in Liechtenstein on 1 August 2009 could register to use the LDF, but since 1 December 2009 more people can take advantage of it.

What is the LDF?
The LDF runs from 1 September 2009 to 31 March 2015. Only unpaid taxes going back to 6 April 1999 will be due, i.e. a disclosure period of only ten years if you make a disclosure now. This is a major advantage, compared with the New Disclosure Opportunity (NDO) and other disclosure facilities as the HMRC can normally pursue liabilities going back 20 years. Furthermore, the LDF offers a fixed penalty of only 10%, compared to the maximum of 100% that can apply in other cases.

What has changed since 1 December 2009?

1 December 2009 marked a significant milestone for the LDF. From that date, anyone who since 1 August 2009 has transferred funds to Liechtenstein from other offshore locations can register to use the LDF to settle their UK tax affairs. Anyone who transfers funds at a later date will be able to use the LDF from the date when the funds are moved into Liechtenstein.

Who can take advantage of the LDF?
Whilst a large number of those with offshore accounts will now be able to take advantage of the LDF to settle their UK tax affairs, there is one condition that needs to be fulfilled - the offshore account cannot be opened through a bank’s UK branch or agency. Therefore, providing an offshore account was opened directly with an offshore bank, funds can be moved to Liechtenstein to qualify for the special terms of the LDF. The LDF can also include other offshore assets besides bank accounts, such as trusts, partnerships, companies and life insurance bonds.

A person who did not disclose everything in a previous serious tax fraud investigation can participate, but a significantly higher penalty will apply. Persons who were previously contacted by HMRC under the ODF or NDO can also participate - they will not be eligible for the fixed 10% penalty, but the penalty will not be higher than under the NDO.

It is also important to note that people who are already under investigation by HMRC on suspicion of serious tax fraud, or have been arrested for a criminal tax offence cannot take advantage of the LDF.

Is it time to consider Liechtenstein?
The terms of the LDF are almost certainly the most favourable that HMRC will ever offer and as time goes on it becomes more and more likely that it will discover previously undisclosed amounts from the mass of information exchange agreements it has signed this year.

Furthermore, as tackling tax evasions remains high on the political agenda, Britain is likely to sign agreements within Europe and the USA and information on tax evasion is likely to flow from these.

We at BDO LLP strongly believe that the LDF can be regarded as a genuine, albeit only partial, tax amnesty and anyone with an offshore account, which includes untaxed amounts, should consider using the LDF to regularise their tax affairs. For many depositors the LDF will be seen as ‘an offer too good to refuse’ and it would indeed be very risky for offshore account holders to ‘wait and see’. If HMRC investigates anyone before they make a voluntary disclosure, there will be no amnesty, much higher penalties will be charged and in the worst cases criminal proceedings may be taken.

We would therefore advise people to consider taking advantage of the LDF and make a disclosure under this facility (or the NDO) if they have unsolved tax affairs. However, any disclosure requires careful consideration and professional advice should be sought from those that specialise in this field by anyone contemplating a disclosure under the LDF.

Fiona Fernie is partner of forensic services at BDO LLP.


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