UK Treasury Strikes Swiss Tax Deal

From 2013 Swiss banks will tax the holdings of UK residents as part of an effort to clamp down on tax evasion and increase banking regulations

London, UK (Pryce Warner International) September 27th, 2011 – The UK treasury estimates that roughly £5bn could be raised through the new measure, which will see Swiss banks make a one-time deduction from accounts held by those liable under the British tax system.

The £5bn will be raised through a one-off tax between 19%-34% on accounts depending on the size and length of the deposit.

Also from 2013 a new withholding tax will apply to assets held in Swiss banks by British residents. This will see rates of 48% applied to investments and 27% to gains.

The deal was made as part of an effort to drive up UK tax revenues and simultaneously clamp down on those who hold their assets in foreign accounts in order to avoid tax.

Despite this, the deal failed to get Swiss banks to reveal the identities of any account holders. In a similar deal recently struck by the German government, it was agreed that in addition to new tax rates, the anonymity of account holders would no longer be preserved.

This means that Switzerland remains a preferential jurisdiction for overseas holdings for British tax payers. In addition to retaining their anonymity, the agreed tax rates are below the equivalent UK rates.

HMRC will only have access to the details of the accounts should an individual wish to challenge a payment.

Despite recent statements that strongly implied the top 50p tax rate would be scrapped, George Osborne hailed the agreement as a sign that the coalition government is serious about ensuring high earners pay their fair share.

The deal has already proved highly controversial, with many financial experts commenting that this is a bad deal for the UK. As the one-off tax rate is much lower than the UK rate, it is seen as a “let off” for those that have for years’ hidden money in Switzerland. There also remains the possibility that account holders will simply move their accounts over the next year and therefore the HMRC will receive a sum significantly lower than £5bn.

According to the treasury the rates of withholding tax have been set lower than UK ones to account for the fact that deductions will take place before they would in Britain. They also commented that the one-off rate accounts for the fact that the taxpayer will not have to fund investigations in order to re-coup money.

David Harra, a Senior Market & Investment Analyst with Pryce Warner International, a Financial Services Provider for Expats, commented: “Despite claims this deal is part of a wider attempt to force the rich to pay their “fair share”, that the 50p tax rate is to be scrapped and UK banking institutions have so far not been properly held to account severely undermines this claim. It also cannot legitimately claim to be part of an effort to put pressure on tax evaders, as the deal does not require any reciprocal exchange of information, which is vital in identifying serious cases of evasion and fraud. There also remain numerous other jurisdictions around the world that individuals can move assets to if they wish. Many of which have rates as low as 10% and retain full banking privacy. The deal also only applies to British and German residents, meaning Switzerland remains a country of choice for avoiding tax for the rest of the world. Any claims that this will bring in serious revenue for HMRC seem unlikely as individuals have over a year to move their accounts to another jurisdiction and all things considered there seems little reason why they would choose not to.”

Pryce Warner International Group provide International Asset & Investment Management, Independent Financial Advice & QROPS Overseas Pensions.

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By: Aneil Fatania
Financial Editor
Pryce Warner International Group
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