Offshore Accounts: Turn the tax tide

We throw a lifeline to those worried about undisclosed savings

By Derek Levy and Mark Giddens, December 13, 2010

For a long time offshore bank accounts - and investments generally - were thought to be safe from the prying eyes of HM Revenue & Customs (HMRC). Those who came to this country often kept a nest egg in, say, Switzerland "just in case" (perhaps in the form of a numbered account or a family trust or foundation) while established UK residents were encouraged by the offshore arms of the banks to set up deposits in the Channel Islands. In recent years, however, the tide has decisively turned against the offshore account in all its manifestations.

Many holders of offshore accounts have, of course, been fully compliant and have either declared their income and gains or have been exempt from doing so by virtue of their non-domiciled status. Others, however, have not been paying the tax that they should - whether deliberately or in ignorance of their obligations - and it is these individuals who are now being targeted by the taxman. HMRC have never been keen on tax evasion but they are now expending far more effort (and money) to obtain information about offshore account-holders and significantly stepping up the punishment for those who fail to disclose their liabilities. The information-gathering exercise has encompassed court orders against banks with a UK presence, agreements with other jurisdictions (discussions with Switzerland have just commenced) and the purchase of information leaked by disgruntled employees, as well as the usual analysis of the movement of funds between offshore and UK bank accounts. The penalties if you have evaded tax and are found out are not just financial but include the threat of criminal prosecution and public "naming and shaming".

For those who have not disclosed their income, gains or indeed inheritances in full, the net is undoubtedly closing in. There is, however, a limited opportunity for individuals in this position to strike a deal with HMRC on very generous terms and to achieve a clean slate going forward. That opportunity is the Liechtenstein Disclosure Facility (LDF) which, although formulated as a result of an agreement with the Liechtenstein authorities, is actually open to almost all UK taxpayers with an offshore account (regardless of its location) who are not currently under investigation by HMRC. Key aspects of the LDF are:

● A fixed 10 per cent penalty

● Guaranteed immunity from prosecution for tax offences and no "naming and shaming"

Clients who expected to pay tax, interest and penalties have walked away with 80 per cent of their funds intact

● A cut-off date of April 5: income or gains arising before this date will not be assessed

● The option of a 40 per cent "composite" rate of tax on income and gains under which some taxes (including inheritance tax) can effectively drop out of assessment

● A bespoke service from HMRC including "no names" discussion of particular circumstances

If you have undisclosed liabilities relating to offshore assets (the first step is to confirm that a liability exists!) the LDF is there for you now. There is speculation that the discussions with Switzerland might lead to a similar arrangement, but it will probably be much less generous.

In the meantime, HMRC is issuing a steady flow of "COP9" notices - indicating investigation for serious fraud - on the basis of information obtained over the last few years. Once you have received such a notice, the LDF is no longer an option - you will be looking at payment in full of any undisclosed liabilities, significant penalties and possible prosecution.

The LDF has been in existence for a year and we have taken clients right through the process. The attitude of HMRC - it genuinely does want the procedure to work - has been surprising, as have the results that we have achieved for those clients.

In cases where the clients fully expected to pay tax, interest and penalties that would use up their offshore funds in their entirety, we have seen them walk away with 80 per cent or more intact.

Moreover, they have gained the reassurance that their affairs are in order and have been able with our help to move on to the next stage - whether that is reinvesting the funds elsewhere or passing them on to children or grandchildren - and to sleep soundly in their beds.

There will be people who still believe that they can beat the taxman by moving funds from one jurisdiction to another. Some of those may succeed, but only to leave a headache for the next generation to deal with.

We don't set out to do the Revenue's job for them, but this is genuinely too good a chance to miss! If you, a friend or a family member have undeclared liabilities relating to funds offshore, we would be happy to talk to you on a "no-names" basis and to explore the options, including how you might take advantage of the LDF.

Last updated: 12:00pm, December 13 2010