HMRC recognises that there is nothing wrong per se with UK resident taxpayers investing in overseas bank accounts, provided that they pay the correct UK taxes on the amounts invested and the income arising. However HMRC suspected that a number of taxpayers used offshore arrangements with the objective of avoiding UK tax and consequently it has invested considerable time and effort over recent years to reach agreements with foreign jurisdictions whereby information about UK residents was exchanged.
One such agreement between the UK and Switzerland came into effect on 1 January 2013. UK resident individuals that held accounts and investments in Switzerland received letters from their Swiss banks asking them to confirm that they were happy for the assets to be disclosed to HMRC.
If the individual did not wish HMRC to be notified, the alternative was for the Swiss bank to make a one-off deduction from the account on 31 May 2013 based on a fixed percentage of the account balance (ranging from 21% to 41%).
HMRC is now writing to those individuals who opted for the Swiss bank to notify HMRC of their details.
The letters make the point that HMRC needs to be satisfied that there either are no additional UK liabilities outstanding in relation to overseas assets or investments, or that the taxpayer will now take action to quantify and pay any outstanding amount of UK tax that they owe, together with any associated interest and penalties which may be due.
The first tranche of letters require a response by 1 November and the indications are that HMRC will launch a formal enquiry into the tax affairs of anyone who fails to respond. It is expected that HMRC will be sending out further batches of the letters between now and January 2014. HMRC are asking these individuals to submit one of three possible certificates.
Certificate A confirms that all UK tax liabilities (income tax, capital gains tax (CGT), inheritance tax (IHT) and VAT) have been paid, which by definition means that all taxable amounts relating to any offshore assets have been correctly shown in the relevant tax returns. Certificate B indicates that the individual has already signed up to the Liechtenstein Disclosure Facility (LDF) or intends to do so. Certificate C indicates that the individual intends to make a disclosure of unpaid taxes but does not intend to use the LDF.
Those individuals who have received a letter need to review their tax returns carefully to confirm that the correct amounts have been returned and the correct tax paid. If they are confident that this is the case then they should respond using Certificate A. Those who become aware of discrepancies will need to consider their options for disclosing the discrepancy and should seek professional advice.
Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2013. code: NTD146 exp: 31/03/14
