Since the signing of the UK-Swiss tax agreement in October 2012, Swiss banks have been writing to account holders who have a connection with the UK. The letters provide two options:
1 – To authorise the Swiss bank to provide details of assets held by the account holder to HMRC, plus future income and gains received;
2 – To retain their anonymity but accept a one-off charge plus withholding taxes on future income and gains.
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For individuals who had historically complied with their UK tax obligations, the procedure is relatively straightforward. However, there are other options in order to regularise their Swiss, and other overseas, accounts; the most popular is by making a disclosure under the Liechtenstein Disclosure Facility (LDF). The LDF is an amnesty (in all but name) for UK tax residents who have tainted, non-regularised money held in Swiss Banks and elsewhere. It is the preferred option as for 99% of clients it’s simpler and the overall percentage charge is lower than with the official UK Swiss agreement.
The options open to clients are as follows:
– LDF (most popular route).
– TCA (UK / Swiss Tax Cooperation Agreement). Known as the "Rubik" Agreement. The default route that clients will fall into if they take no action.
– Move the money to another tax haven. This is aggressive and could eventually lead to a spell in jail and also naming and shaming of those concerned.
– Become non UK resident for tax purposes (very quickly).
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By GlobalDataOffshore wrappers – the tax efficient solution?
The reason for focusing on this topic is to highlight the role an offshore single premium whole of life assurance or redemption (wrapper) bond (OSB from here on), could play for clients who have regularised their assets through the LDF route and are looking for an alternative, tax efficient solution.
The OSB can usually hold similar assets to those that were in the Swiss accounts, provided these are bankable assets, albeit for UK residents these must be unitised in the form of cash, collective fund units, hedge funds, and some exchange traded funds.
If assets are placed within an OSB structure then you and your clients gain control over the timing and nature of any events that are chargeable to tax. All taxes are deferred within the structure, except for any unreclaimable withholding taxes on income or dividends received. Ultimately, tax will only arise on encashment of all or part of the OSB.
Removing tax on an arising basis
For UK tax resident clients they would be able to strip out up to 5% of the original settled capital into the structure per annum without the need for any tax payment or self-assessment inclusion. Tax would be deferred and not paid on an arising basis. This takes away most reporting requirements that your client would otherwise have on these accounts. Also they could give the OSB, in whole or in part, to non UK Residents, or UK Residents with lower tax rates than themselves and they could encash only paying the rate applicable to them or their jurisdiction.
Dealing with IHT
If your client’s regularised money is not wrapped in some form of insurance contract then it will be held directly and as such they will be liable for tax on an arising basis as would all their other directly held assets in the UK. For example, capital gains tax in the UK is up to 28% and income tax (dividends, bank interest etc) up to 45%.
Inheritance Tax (IHT) planning is also crucial for clients in this situation. Most of the money that becomes regularised will be liable to UK IHT at 40%, where before the expectation from most clients was that it would not be. The use of the OSB structure brings some unique and extremely effective trusts into play that could help mitigate some, if not all IHT in this situation.
Steve Lawless is global head of banking distribution at Skandia UK & International
