The Liechtenstein Disclosure Facility (LDF) is an agreement entered into between the governments of Liechtenstein and the UK which enables UK citizens to declare previously undisclosed income and assets to HM Revenue & Customs (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). The point is less about the disclosure itself and more to do with the benefits of disclosing under the LDF, where penalties and interest charges can be significantly reduced and any risk of criminal prosecution avoided altogether.
The LDF opened on 1 September 2009 and will now run until 5 April 2016, having been extended by a further 12 months from its original close in 2015. It is considered vital that anyone wishing to take advantage of the benefits of disclosure under the LDF must therefore act soon.
Individuals with undisclosed foreign income and gains are considered to be tax evaders, whether they do so deliberately or inadvertently because of an interest in a historic family trust perhaps. Where they are discovered, as a result of increased cross-border information sharing or possibly a whistleblower as we have increasingly seen recently, HMRC will seek to recover all of the undisclosed tax for up to the previous 20 years. In addition those discovered to have undisclosed“offshore” income and gains can expect to face interest and penalties of up to 200% of that unpaid tax or in extreme cases, the prospect of criminal prosecution.
The LDF however allows individuals to voluntarily regularise their tax affairs, with participants normally receiving a penalty of only 10% of the tax due and usually with HMRC looking back only 10 years. More importantly perhaps in the most serious cases, there can be no prospect of criminal prosecution under the LDF.
The details of the original LDF were set out in a “Memorandum of Understanding” between the Liechtenstein authorities and HMRC. This required Liechtenstein banks and other financial intermediaries to identify all Liechtenstein registered asset and bank account holders with UK addresses, who would then register themselves with HMRC before HMRC made contact with them. Of course most individuals will already have disclosed their foreign source income and gains but for those who have not, this was and continues to be a sensible opportunity to do so.
Whilst as the name suggests, the LDF relates specifically to persons with assets already in Liechtenstein, it may be possible to create a ‘footprint’ in that country by opening a new account with a friendly bank, so that voluntary disclosure of all assets in other offshore jurisdictions can then be made within the terms of the LDF
Once registered under the LDF an individual has up to 10 months to complete their disclosure to HMRC and it is estimated that in less than 5 years, around 1,500 people have done just that, with tax receipts, interest and penalties, now exceeding £3bn compared to the £1bn originally predicted.
The LDF is heading for its fifth anniversary and will then have only 18 months to run. It has already been extended once and is considered very unlikely to be extended again.
TAP has assisted a number of clients to reconstitute bank account transactions and calculate offshore gains arising in all manner of overseas jurisdictions, so that disclosure can be made under the LDF.
There are those who have had family money tied up in overseas trust structures and inadvertently did not disclose, and others who had perhaps never intended to stay in the UK and had taken a more positive decision not to disclose, only to find that they now needed to acquire a London home for example, and need to bring previously undisclosed overseas cash into the UK.
We work with specialist immigration lawyers, traditional law firms and accountants, IFAs and other professionals, assisting them and their clients to bring their tax affairs up to date in accordance with the LDF.
With an opportunity such as that available under the LDF for those who want to comply, it is unsurprising that HMRC has zero tolerance for those who do not and are subsequently found out.