UK Disclosure: UK Budget starts the beginning of the end of the LDF
Since the August 2009 announcement of an agreement between HM Revenue & Customs (“HMRC”) and the Government of the Principality of Liechtenstein, the LDF (“Liechtenstein Disclosure Facility”) has been the most painless route to disclosure for many UK resident individuals with previously undisclosed offshore income and assets. Originally set to run until April 2016 the UK Chancellor’s recent March 2015 Budget announced that the disclosure program will now only be available until December 2015. It was also announced that the Crown Dependencies Disclosure Facility, set to run until September 2016, will now also be shortened to end in December 2015. Like the LDF, this facility offers taxpayers the opportunity to resolve their tax position with HMRC on favourable terms for those with money in one of the Crown Dependencies.
As a replacement to both the current facilities it is understood that HMRC will introduce a new tougher “last chance” disclosure facility that will be offered between 2016 and mid-2017. Little is known about this new program, however, it is understood that it will include penalties of at least 30% of resulting tax liabilities and interest. Critically, the new facility will not guarantee immunity from criminal prosecution.
Another relevant announcement within the budget statement was the introduction of legislation to implement the Common Reporting Standard, (CRS), which is an OECD standard for automatic exchange of financial account information. This will enable HMRC to automatically obtain financial information on foreign bank accounts of UK residents and entities from foreign jurisdictions within the OECD. The following countries are also expected to implement the CRS: Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore, and South Africa.
The implementation of the CRS will increase HMRC’s access to what it considers a possible “treasure trove” of information related to the offshore accounts of UK resident individuals and entities. It is now even more important that taxpayers take immediate action to bring their UK tax situation into compliance in order to avoid what some are calling the “ticking time bomb.”
Both the LDF and Crown Dependencies Disclosure Facility offer taxpayer’s opportunities to disclose and resolve their tax issues with HMRC on favourable terms for the income and/or assets disclosed which are/were held in Liechtenstein or one of the Crown Dependencies, respectively. However, a review of both facilities confirms that the terms of the LDF are the more favourable.
Overview of the LDF and its unique benefits:
- Individuals with unpaid UK taxes relating to previously undisclosed income or capital gains linked to offshore accounts and assets held in the Principality of Liechtenstein may use the LDF to settle related tax liabilities and late payment interest charges and penalties.
- The LDF can also be used by those UK taxpayers who do not have an existing asset in Liechtenstein provided they do have such an asset at the time of registering with HMRC for participation in the facility and they held an offshore asset (worldwide) on 1st September 2009.
- The LDF provisions apply to all UK residents and/or certain non-UK domiciled individuals who have any interest in a “Relevant Asset” (i.e. Accounts, Trusts, Regulated Trusts, Stiftungs, Foundations, Anstalts or Corporate entities) operated and/or managed in the Principality of Liechtenstein and would otherwise be subject to UK tax.
- The assessment period is limited to tax years beginning 6th April 1999 onwards (or accounting periods from 1st April 1999). Also, where liabilities arise from innocent error or carelessness of the taxpayer the disclosure period is limited to four or six years respectively. This is extremely beneficial as generally HMRC’s powers allow them conduct enquiries for periods going back as far as 20 years in circumstances where the individual’s UK tax non-compliance is suspected to have been deliberate.
- A taxpayer may be able to claim immunity from criminal prosecution if the disclosure includes a full declaration of previously undeclared worldwide assets and income held offshore. This amnesty will apply if any outstanding income tax, capital gains tax, inheritance tax etc. is paid in full together with additional interest and penalty charges. Outside of the LDF, ordinarily HMRC can, in extreme cases, apply a penalty of 200% of the tax outstanding and recommend criminal prosecution leading to a conviction and a possible sentence of up to seven years imprisonment.
Is the LDF right for me?
For those pondering the question of whether participation in the LDF is appropriate for their circumstances, our experience is that there is a wide variety of UK resident individuals and entities taking advantage of the facility. These include:
- Those who have “inherited” a problem
- Individuals and entities with undisclosed trading income from prior years
- Individuals and entities that were previously investigated by HMRC but failed to disclose all overseas income and/or assets
- Those who opted out of the UK / Swiss Agreement, were not within the scope of the Agreement, had a one-off charge applied to the account balance but did not make a disclosure to HMRC to achieve UK tax clearance, closed accounts or dissolved entities prior to the Swiss Agreement, or anyone who was (incorrectly) not identified as UK resident by a Swiss Bank
- Those who wish to resolve inheritance tax issues to ensure the non-compliance issue is not passed to future generations
- Those who would like to transfer or repatriate into the UK (i.e. to acquire a UK asset or invest funds in a UK business)
- Trustees and Directors of overseas companies to resolve legacy issues
The new December 2015 deadline for participation in the LDF is fast approaching so those dealing with related issues should act as soon as possible to assure access to the benefits of the LDF. If you have any queries regarding the LDF, the UK disclosure climate or any questions about your taxes, contact us:
+41 44 387 8070
+44 20 7357 8220