In addition to the various general “amnesties” in recent years - all of which have now closed - a separate facility is available for those with accounts or other assets held in Liechtenstein. This operates in a fundamentally different way to the other amnesties and provides for unprecedented cooperation between Liechtenstein and HMRC, exchange of information relating to a person’s tax affairs, and a new facility enabling disclosure to HMRC of previously undeclared tax.
A key point is that no-one should discount the Liechtenstein facility as it is theoretically available to anyone, even those who currently have no connection whatsoever with Liechtenstein.
The Liechtenstein disclosure facility, or LDF, could save users a massive amount of tax and interest in the right circumstances.
Key principles of the LDF
The principles of the scheme are outlined in a Memorandum of Understanding between the Liechtenstein authorities and HMRC. The key points are:
- Liechtenstein banks and other financial intermediaries must identify “relevant persons” – effectively anyone who may have a tax liability in the UK, for example if a UK address is somehow linked to the account in question and contact those people about their UK tax affairs.
- The Liechtenstein financial institutions will be audited to verify their compliance with the above requirement.
- Those persons must then register with HMRC to make a disclosure under the LDF and forward the registration certificate to the Liechtenstein bank, unless detailed evidence in the form of an accountant’s certificate that there is no additional liability in the UK can be provided.
- If the certificate is not provided, the Liechtenstein bank is required to cease acting for the relevant person.
- Once registered for the LDF, the person has up to 10 months to make a full disclosure to HMRC of all UK tax due in respect of the Liechtenstein assets.
If assets are already held in Liechtenstein there is no need to wait until contact is made by the bank; the LDF can be used immediately if a disclosure is appropriate.
On the other hand, there is no need to already have a link with Liechtenstein. Anyone who now moves funds into Liechtenstein, or obtains an interest in an appropriate Liechtenstein asset, can use the LDF, although there are various complexities to consider before ascertaining if the full beneficial terms of the LDF will be available, such as how the original bank accounts were opened. We have the appropriate contacts in Liechtenstein to help achieve this.
Back to the top
Advantages of the LDF
The terms of the LDF lead to some interesting and significant savings that can be made over normal disclosure routes, including other more general offshore amnesties. For example:
- An LDF disclosure needs to cover only 10 years from 6 April 1999, rather than up to double that normally. Clearly this could cut the tax bill drastically depending on the history of the irregularities.
- Interest could have an even more marked effect. Interest rates in the early 1990s were huge compared to today, staying at well over 10% for several years. So an LDF disclosure could save not only a significant amount of tax but also a hugely disproportionate amount of late payment interest on those early amounts of undeclared income.
If inheritance tax (IHT) is relevant, for example the funds in the offshore bank account derive from an earlier death and were not declared for IHT purposes, there is usually no limit on how far back HMRC can go to collect the tax . There is no such extension under the LDF.
LDF disclosures can benefit from a special ‘composite rate’ of 40% per annum to cover all taxes. This may be beneficial if, for example, PAYE and NIC (totalling more than 40% tax) are due. Applying the composite rate to income and gains from April 1999 onwards can also lead to significant savings if there is undeclared IHT relating to a death after that date.
There is an absolute guarantee of immunity from prosecution for any underlying tax offences under the LDF. There is no such a guarantee under the normal disclosure routes or other offshore amnesties.
Taxpayers and their advisers can open dialogue with HMRC on a no-names basis, a practice which HMRC stopped several years ago for other tax investigation work.
Back to the top
Already UK tax compliant?
It is, of course, not against tax or any other law to hold an account in Liechtenstein. Many people have accounts there and are fully UK tax compliant, hence they believe that the LDF is not relevant to them.
However, it should be remembered that a key principle of the agreement between the UK and Liechtenstein is that the bank will, by law, have to cease acting for the UK client if the LDF is not used or an appropriate accountant’s certificate is supplied confirming that he taxpayer is fully UK tax compliant.
In some cases that may be straightforward, for example, if all that needs to be reported in the UK is bank interest earned on the account. In other cases it will be a much more onerous task, for example if we need to prove the negative, such as ascertaining that a non-UK domiciled individual has not (over many years) inadvertently remitted income or gains to the UK, perhaps indirectly or from a mixed account.
In those circumstances, a lot of sensitive banking papers may need to be supplied. It is, in our view, far better for this type of scrutiny to be undertaken by an adviser who is acting in the client’s best interests rather than the inevitable later scrutiny by an HMRC officer who wants to maximise the tax liability. The client will also benefit from the certainty of such a fiscal health check or, if mistakes are found, be able to use the LDF with all its beneficial terms
A confidential initial consultation is free of charge – so contact us now
|