An historic agreement was reached last week with the Swiss tax authorities which means for the first time tax will be deducted at source from savings and investments held in Switzerland by UK citizens.
Generally income and gains from offshore assets are taxable in the UK anyway, so for most taxpayers the new measure will have little impact. Any tax deducted at source in Switzerland can be used as a credit against the UK tax arising. These people were not the target of the new tax deduction; rather it is those who use Swiss banking secrecy rules to hide money and not declare anything. In other words, tax evaders.
From 2013 Switzerland will withhold 48% on income and 27% on capital gains in a measure that HMRC estimates may bring in between £3bn and £6bn per year. However it remains to be seen how much this will actually raise. There is more than a year before the new charge takes effect – has HMRC shot itself in the foot by giving people the opportunity to move their money to somewhere even more secretive so it is not subject to the withholding tax?
Additionally, accounts that are still open in May 2013 will be subject to an historic levy of up to 34% based on how long the account has been open. This is designed to clear historic undeclared liabilities. Whether this represents good value for money for Britain is questionable, given that British income tax rates have always been higher than 34%. Compared to the Liechtenstein Disclosure Facility where taxpayers have been offered reduced penalties in exchange for paying the full tax due, the Swiss deal equates to no penalties and reduced tax – a bargain for tax evaders.
The Swiss agreement represents progress for HMRC in tackling the ongoing problem of international tax evasion, but perhaps not as much as HMRC and the government would like us to believe.
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