The Liechtenstein Disclosure Facility – an offer too good to refuse!

With HMRC prepared to both use the courts and pay large sums to whistleblowers to gain access to your data, the chances of the tax man finding out about your offshore assets - whether in Liechtenstein, Switzerland or anywhere else - is now extremely high. When you are found out, HMRC can be expected to come down hard with significant penalties and criminal prosecution a very real possibility. If you have undeclared UK tax liabilities you have two choices: to wait until your turn comes (and it will come) or to get in first with a disclosure of relevant income and gains. If you are going to disclose, it clearly makes sense to take advantage of the very generous terms of the Liechtenstein Disclosure Facility (LDF).

What is the Liechtenstein Disclosure Facility?

The LDF is the result of an agreement between the UK and Liechtenstein governments aimed at ‘cleaning up’ Liechtenstein’s reputation as a haven for tax evaders (full details can be found at www.hmrc.gov.uk/disclosure/liechtenstein-disclosure.htm). Despite the name, however, the LDF is open to almost anyone with undeclared tax liabilities associated with any offshore assets. All that is needed is that you establish a ‘meaningful relationship’ with a Liechtenstein financial intermediary (see below).

The LDF goes a good deal further than previous tax ‘amnesties’ and, as the first of its kind, it is generous to an extent that is unlikely ever to be repeated. Key features are:

• A fixed starting point: no looking back at periods prior to April 1999.

• Penalties capped at 10% up to 2008/9 and 20% for later years (with no penalty at all in cases of ‘innocent error’).

• Guaranteed immunity from criminal prosecution for tax offences in return for legitimate full, accurate, and unprompted disclosure.

• A streamlined and assisted process aimed at getting your affairs in order, including an HMRC helpdesk comprised of dedicated experts who will provide assistance with disclosures on an anonymous basis if desired.

• A composite rate option under which liabilities to various taxes can be covered by accepting a flat rate of 40% on income and gains.

• The possibility of payment by instalments if you have trouble paying in full.

Is it for real?

The completion of the forms and the underlying computations can be laborious, but the April 1999 cut-off date is a wonderful provision (particularly since so many offshore institutions do not retain records more than ten years old). The attitude of HMRC, particularly their willingness to discuss problem areas and to compromise where necessary, is refreshing (although it has taken some getting used to for those accustomed to a rather more confrontational approach!). Clients are clearly benefiting – not just in terms of peace of mind and a clean slate going forward, but from the agreement of tax liabilities considerably lower than they might otherwise have been (savings of up to 75% are quite possible).

What situations are covered by the LDF?

Typical scenarios that we have seen, include:

• Funds retained abroad, either in their own names or via a trust or foundation, by those who have come to this country and gone on to acquire UK residence and domicile (the concern usually being with unpaid income and capital gains tax).

• Savings that UK residents have transferred overseas, again held either in the names of the individuals concerned or a trust or foundation (again unpaid income and capital gains tax).

• Income of a UK individual or company that has been diverted offshore without ever being declared (unpaid income or corporation tax on the original receipt and possible unpaid National Insurance and VAT as well, plus income and capital gains tax in respect of subsequent movements).

• Proceeds from the sale of an asset, either in the UK or offshore, that have been placed in an offshore account without being declared (capital gains tax on the original disposal plus income and capital gains tax in respect of subsequent movements).

• Funds as above that have been inherited by the next generation but remain undeclared (unpaid Inheritance Tax on top of everything else).

Do note that you cannot utilise the LDF if you have received a notification from HMRC that they intend to enquire into your affairs or if you did not have any overseas assets on 1 September 2009.

In a number of cases we have been contacted by family members on behalf of elderly relatives. We are happy to give initial advice on that basis, although ultimately it is the person with the tax liability (or their properly appointed attorney) who must make the disclosure.

How is the tax calculated?

The tax owing is calculated either on the actual basis or using the composite rate option (CRO). The actual basis is the additional tax payable on all sources of income and gains after deducting all available allowances and reliefs. The CRO is generally a much simpler calculation based on a tax charge of 40% of all income and gains without any deduction for allowances or reliefs. Where an election to apply the CRO is made, the calculation will be accepted by HMRC in lieu of all UK taxes otherwise due on the actual basis for the tax years of disclosure up to 5 April 2009. For example, there would be no additional charge to Inheritance Tax where that might otherwise be due.

The CRO can also cover taxes due in respect of a previous owner of the assets in question such as a deceased parent and the executors of their estate in the case of an inheritance. Either the executor or the person who has inherited the assets, or both, can disclose under the LDF any unpaid UK taxes in respect of the applicable periods.

How do I make a disclosure?

Once you are sure that a liability exists and that the LDF is the right approach for you, the starting point in most cases is to transfer sufficient funds to a Liechtenstein financial institution for a ‘meaningful relationship’ to be established. We can guide you through these requirements. You can then register for the LDF and proceed with gathering together the relevant information and completing the disclosure forms.

Although it is in theory possible to submit a disclosure personally, completion of the forms is generally the last stage of a complex and time-consuming computational exercise. More importantly, when the forms are submitted they will be risk-assessed by HMRC before they decide whether to enquire further into your financial affairs. Significant elements in that risk-assessment will be the content of any accompanying report and whether the forms have been prepared by an adviser in whom HMRC already has confidence.

Why choose UHY Hacker Young?

Our expert team is ideally placed to assist you, bringing to bear their knowledge of individual and corporate taxation as well as our experience of HMRC investigations and disclosures. Over the years we have dealt with the original Offshore Disclosure Facility, the New Disclosure Opportunity and now the LDF. Moreover, the volume of disclosures that we have dealt with means that we have a good working relationship with HMRC – including a dedicated relationship manager on their Liechtenstein Desk.

Our experience and the strength of that relationship means that we can guide you through the whole process from deciding whether you need to make a disclosure, notifying HMRC of an intention to disclose, obtaining the necessary information, calculating the tax (and advising whether the CRO is beneficial), compiling a report to HMRC and finally submitting the disclosure. If appropriate, we will be able discuss with HMRC any uncertainties so to increase the chances of agreement of the final disclosure without further enquiries.

Our fees are directly linked to the time it takes to deal with your disclosure and are modest when compared to our larger competitors. 

The next step

Talk to us!  HMRC are clearly working their way through the information already at their disposal in respect of offshore accounts as well as trying to gather more. The net is closing in and recent months have seen a number of arrests and prosecutions (plus the announcement of significantly increased penalties for those who do not come clean).

For a free 'no names' discussion of how we can help you, please contact:

in our London office now, or alternatively get in touch with your local UHY Hacker Young office.