As part of their ongoing efforts to tackle tax evasion, Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.... More have announced a new strategy targeting individuals with Swiss bank accounts.
They expect to generate £3bn to £6bn in additional tax revenues via an agreement with the Swiss tax authorities to introduce a new withholding tax on Swiss investment income paid to British citizens. Details of the new agreement are expected in the next month, but the “headlines” are expected to be as follows:
- A withholding tax of 25% to 35% on dividends and any interest earned on accounts, trusts or other investments owned by British nationals.
- A further levy on previously untaxed income, perhaps going back six years.
- An agreement by the Swiss to give financial details about individual accounts, as long as HMRC can demonstrate that those accounts are being used to evade British tax.
- New rules for Swiss banks that will oblige any British customer to show that he or she is compliant with the UK tax system.
Curiously, the withholding tax will be paid directly by the bank rather than being suffered by the account holder, and HMRC will not be informed of the source of the payments, thereby allowing the Swiss banks to retain their highly prized confidentiality. If the British taxpayer is later subject to an investigation by HMRC, the Swiss bank will provide a certificate showing the customer made a tax payment under the new deal.
It should be kept in mind, however, that having a Swiss account, or another non-UK bank account, does not itself amount to tax evasion. Indeed, particularly for non-UK domiciled individuals, there may be very legitimate reasons for holding funds in a Swiss bank account.
It will be interesting to see the details of the agreement, once released, as a number of practical issues spring to mind which will need to be addressed. In particular:
- How many prior years will new withholding tax apply to?
- How will the agreement work in cases where accounts have since been closed?
- How will the agreement distinguish non-UK domiciled individuals who may well owe no tax on a Swiss account from other British citizens?
It also remains to be seen how the new withholding tax will interact with the existing European Union Savings Directive (“EUSD”), which typically applies a 20% withholding tax to accounts held by EU citizens. At present, many offshore banks disapply this EUSD tax for investors where a tax adviser is able to confirm their “non-dom” status, but it is unclear whether a similar relaxation will apply to the new Swiss tax.
Further details will follow on this site but it seems that large numbers of UK taxpayers with Swiss investments will inevitably be affected. Please contact us to discuss the likely impact of the proposals for you or for assistance in disapplying the EUSD in respect of your own non-UK bank accounts.