Advisors Frown On Results Of UK/Swiss Tax Agreement; HMRC Says Too Early To Judge It

Tom Burroughes Group Editor London 24 September 2013

Advisors Frown On Results Of UK/Swiss Tax Agreement; HMRC Says Too Early To Judge It

Suggestions that the UK’s tax agreement with Switzerland has been disappointing because “only” £747 million ($1.197 billion) has been recovered so far ignores that it was unrealistic to make estimates of undisclosed revenues in the first place, advisors say.

Meanwhile, the UK tax authority insisted it was premature to dismiss the agreement as a failure.

The UK government hoped to recover £3.2 billion from its agreement with the Alpine state but there were several reasons why collecting such money on the hoped-for scale was unlikely, Withers, the law firm, said in a short comment.

HM Revenue & Customs, the tax authority, did not have the data to accurately estimate such a figure, while the agreement allowed an opt-out for resident non-domiciliaries.

Discretionary trusts did not fall under the agreement’s scope as it was hard to know what assets they contained. And finally, Withers said, most wealth planning firms advised clients to use the more lenient Liechtenstein Disclosure Facility instead.

The recovered revenues come from the one-off Swiss Capital Tax, levied under the agreement between January and May this year.

Under the agreement, accounts held by UK residents and citizens that had not been declared to HMRC previously were subject to a levy. After revenues of £342 million in January this year and a further £258 million in July and £147 million in August, inflows are now expected to continue to taper off rapidly, since deductions should have already been made by now, argues Saffery Champness, the accountants and advisors.

“I am completely unsurprised at this outcome. Although the figure of £3.2 billion may have been in the right ballpark in terms of what the HMRC is owed, it was massively optimistic to expect that they might actually recover this much,” Ronnie Ludwig, partner in the private wealth group at the firm, said.

“Those who wish to avoid the taxman’s scrutiny will continue to use very sophisticated tax planning structures. A large number of Swiss bank accounts with connections to the UK are not actually held by individuals, but are bound into complex webs of offshore subsidiaries and trusts, whose beneficial owners are not recorded anywhere,” Ludwig continued.

“It is extremely time-consuming and expensive for HMRC to investigate offshore structures. When the taxman gets a sniff, assets can be switched from one jurisdiction to another at a moment’s notice. Nothing is going to change until we have internationally agreed standards, under which accounts and assets are recorded together with the names of their beneficial owners,” he said.

HMRC responds

In response, HMRC said in a statement: “The UK/Swiss Agreement provides for withholding tax and details of accounts which UK taxpayers wish to disclose to HMRC to be provided in a series of instalments over a number of months starting in July 2013. The payment of £258 million and the details of accounts held by over 14,000 individuals are the first such instalments.”

“It is too early to be certain how much the agreement will bring in but it's important to remember this is money that without this groundbreaking agreement would largely remain untaxed,” it said.

“Under the UK/Swiss agreement taxpayers who have accounts in Switzerland can make a one-off payment to HMRC to settle any outstanding tax liabilities. This one off payment was deducted from accounts in May, and the funds are being paid over to the UK in monthly instalments until June 2014,” the organisation added.   


Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes