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FAQs for Agents and Advisers
In August 2009, HM Revenue & Customs (HMRC) launched the Liechtenstein Disclosure Facility (LDF) along with a new Tax Information Exchange Agreement (TIEA) with Liechtenstein. The UK and Liechtenstein governments signed a Memorandum of Understanding (MOU) aimed at preventing the evasion of UK tax (via Liechtenstein). In essence, the MOU contained a two-pronged approach: -
1. HMRC would offer a bespoke disclosure facility to allow UK taxpayers to regularise their affairs; and
2. Liechtenstein banks and fiduciary companies would commence a taxpayer compliance programme requiring that UK clients confirm that their UK tax affairs are in order. If not, then the clients would be asked to make a disclosure to HMRC. If a client does not confirm that they have fully complied with their UK tax requirements by 31 March 2015 then the Liechtenstein banks and/or fiduciary companies will end the relationship (i.e. close the account, structure etc).
On this page:
What are the benefits of using the LDF?
The terms offered by the LDF are more beneficial than would normally be secured or negotiated with HMRC as part of any tax disclosure. Real 'tax savings' can be made.
The benefits include: -
1. A guaranteed immunity from prosecution for the tax offences you might have committed (if a full disclosure is made);
2. Only taxes/duties due from 6 April 1999 onwards will be assessable (i.e. any taxes or duties that might be owed for periods before then do not have to be paid); and
3. A fixed penalty of 10% (on all unpaid taxes/duties from 6 April 1999 onwards).
The LDF covers all UK taxes and an election can be made to use the Composite Rate Option (40%) rather than different liabilities all being charged on the same monies (e.g. VAT, Corporation Tax, Income Tax, National Insurance Contributions etc).
If it can be established (and agreed with HMRC) that the taxpayer made an 'innocent error' any tax settlement will be restricted to only six years and no penalty will be charged. However, this is not easy to achieve and specialist advice from OneE TDI is essential.
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Can your client take advantage of the LDF?
Any UK resident taxpayer (individuals, partnerships, companies and trusts) who has undisclosed tax liabilities linked to a Liechtenstein bank account, financial portfolio or structure (e.g. a trust ("Treuhandschaften"), a foundation ("Stiftung") or an establishment ("Anstalt")) can register for the LDF unless: -
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When might your client not benefit from all the terms offered by the LDF?
Your client may not be able to take advantage of all the beneficial terms full offered by the LDF if: -
Specialist advice from OneE TDI will help you confirm what terms can be secured as part of any LDF disclosure.
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Could my client be prosecuted?
If your client makes a full and complete disclosure to HMRC under the LDF he/she will not be prosecuted for any tax-related offence that they might have committed.
However, if the funds/assets they hold in Liechtenstein are connected to criminal activity (other than tax evasion) then there is no guaranteed immunity from prosecution under the LDF. In such circumstances, OneE TDI can help you seek advice from leading lawyers to confirm your client's position and decide how best to proceed.
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How long does your client have to register for the LDF?
The LDF and compliance programme run until 31 March 2015. However, if HMRC starts an investigation into your client's affairs before they've registered for the LDF (see above) then they might not then benefit from all the terms offered by the LDF – and they could end up paying significantly more to HMRC as part of any settlement.
The LDF allows taxpayers the opportunity to regularise and restructure their tax affairs in a tax efficient manner.
For these reasons, taxpayers are advised to register for the LDF 'sooner rather than later'.
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My client doesn't have an existing Liechtenstein account/asset. Can he/she still use the LDF?
If your client doesn't currently have a bank account, asset, investment or structure (e.g. a trust) in Liechtenstein, he/she may still be able to qualify and register for the LDF. To do so, they need to hold 'relevant property' (i.e. a bank account, asset, investment or structure) in Liechtenstein. This can be achieved by simply opening a bank account in Liechtenstein or transferring the management of an investment portfolio or a trust to Liechtenstein. OneE TDI can help you and your client through this process and, in certain circumstances, they will not even have to travel to Liechtenstein.
To qualify for the LDF, your client must have an offshore bank account which was not opened through a UK branch or agency. So, if he/she previously opened an account in, say, Switzerland they can now open a bank account in Liechtenstein to qualify for the LDF. However, if your client opened their (say) Swiss bank account via a UK branch or agency of that bank, they won't qualify for the full terms of the LDF – that is not to say that they can't still make a disclosure to HMRC.
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How much does my client have to transfer to Liechtenstein?
There is no 'hard and fast rule' or minimum LDF requirement. Each financial institution in Liechtenstein is different. However, new investments established specifically to enable participation in the LDF must be: -
"meaningful and of sufficient value and permanence to reflect the spirit of the MOU".
OneE TDI can provide your client with the specialist advice they need to decide how best to progress matters in this regard.
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Does the LDF cover all taxes?
Yes. The LDF essentially covers all UK taxes (including UK Inheritance Tax, Income Tax, National Insurance Contributions, Corporation Tax, Capital Gains Tax, VAT and Stamp Duty. Tax withheld under the European Union Savings directive or under the Agreement on the Taxation of Savings between the EU and Liechtenstein may be offset.
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What has to be included in a LDF disclosure?
Most importantly, your client's LDF disclosure must be full and complete.
In general, the disclosure will include details of your client's world-wide income, profits, gains, assets and liabilities (including those not held in Liechtenstein).
If your client is non-UK domiciled for UK tax purposes, he/she will only need to declare income, profits, gains, assets and liabilities relating to their UK tax liability.
Your client does not need to provide (and HMRC should not request) information on any assets or interests that are not relevant to UK tax liabilities.
Each case is different and advice from OneE TDI is essential before any disclosure is made to HMRC, but LDF disclosures generally require: -
- Various personal details;
- Information and documentation confirming that your client has a Liechtenstein asset;
- Full details of all previously undisclosed tax liabilities for each tax year since 6 April 1999 (or earlier if applicable) and ending with the UK tax year covered by the disclosure. Estimates can be used, but evidence to support them is required;
- Information confirming how the overall tax liability has been established (i.e. what it relates to, the periods involved etc). A disclosure report prepared by OneE TDI is often the best way to present this information to HMRC;
- A signed declaration that your client's disclosure is correct and complete;
- An offer to pay an amount to cover the tax, interest and penalties due as part of the LDF and payment of the total liability. If your client can't pay the full amount due, HMRC will require evidence to explain/confirm why and proposals for how and when he/she intends to make payment.
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My client is currently the subject of a HMRC Compliance Check. Can he you use the LDF?
Yes. You can register for the LDF unless HMRC has already written to your client to tell him that he is either: -
The facts of the case will determine which of the LDF's beneficial terms he will be able to secure. Specialist advice from OneE TDI is essential.
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What if the funds in Liechtenstein were inherited?
As you are probably aware, there is normally no time limit within which HMRC must recover Inheritance Tax (IHT). However, under the LDF, IHT is only recoverable for periods on/after 6 April 1999. If the deceased passed away before then no IHT will be payable.
Furthermore, any Income Tax and Capital Gains Tax liabilities relating to a deceased person can, generally, only be recovered for the six years prior to the date of death and HMRC cannot normally impose a penalty on the Executors of the Estate.
If an election is made to use the LDF's Composite Rate Option, any IHT liability that might otherwise be due could fall away – a possible further tax saving. Specialist advice from OneE TDI on this point is essential.
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My client has undeclared UK profits/gains. He has never had an offshore bank account. Can he benefit from the LDF?
Yes. If your client now acquires 'relevant property' in Liechtenstein he may still qualify for the LDF, but he will not be eligible for the ten-year limitation period or the fixed 10% penalty. He will also not be able to elect to use the Composite Rate Option. However, if he makes a full, voluntary disclosure via the LDF, he will obtain immunity from prosecution and the penalty he has to be pay will be lower than HMRC would otherwise charge.
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My client has undeclared UK profits/gains in an offshore bank account. He didn't open the account via a UK branch or agency. If he now transfers funds to Liechtenstein can he benefit from the LDF?
Yes. Your client can register for the LDF once he holds 'relevant property' in Liechtenstein. The income accruing on the offshore investment and the profits/gains will only be assessable from April 1999 onwards under the terms of the LDF (plus interest and the fixed 10% penalty). As the funds have not been held in an offshore account opened through a UK branch or agency, HMRC will not assess any tax years prior to 1999/2000.
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My client has an offshore account outside Liechtenstein, which he opened via a UK branch of the Bank. Can he benefit from the full terms of the LDF in respect of that account?
No. He will not be eligible for the ten-year limitation period or the fixed 10% penalty. He will also not be able to elect to use the Composite Rate Option. However, if he makes a full, voluntary disclosure via the LDF, he will obtain immunity from prosecution and the penalty he has to be pay will be lower than HMRC would otherwise charge. This remains the same even if your client closes the offshore account and transfers the funds to Liechtenstein.
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I act for a Liechtenstein trust (or other entity such as a Foundation or Establishment. It has invested in a portfolio of assets via a UK broker. The broker holds and manages the account in the name of the trust/entity. Can the trust/entity register for LDF?
Yes. If there are UK tax liabilities that have not previously been disclosed, the legal representatives of the trust/entity may make a disclosure on behalf of the trust or entity via the LDF. The fact that a UK broker holds and manages the account does not affect the availability of the full terms of the LDF (unless the bank account of the non-UK trust/entity was opened via a UK branch or agency of that bank).
Similarly, a beneficiary, beneficial owner, shareholder, settlor, etc, may also register for the LDF in respect of any previously undeclared UK tax liabilities.
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What could happen in Liechtenstein if your client decides not to make a disclosure?
As part of the taxpayer compliance programme agreed as part of the MOU, all Liechtenstein Financial Intermediaries (FIs) are obliged to identify clients who they consider to be UK-resident and seek confirmation from those clients that they are either: -
(a) not liable to UK tax; or
(b) have fully complied with their UK tax obligations; or
(c) that they are making a disclosure to HMRC.
If customers don't provide the necessary confirmation within 18 months of being contacted by their FI then the FI will stop provide banking and/or fiduciary services to them or continue only with withholding tax or other sanctions applied.
Your client could ask you to certify that their UK tax affairs are correct. A full review of their affairs might be required.
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What if my client doesn't make a disclosure and HMRC then catches up with them?
Obviously, the worst thing that could happen is that your client could be criminally investigated and prosecuted for tax evasion.
If your client should have made a disclosure and chose not to and HMRC starts a civil investigation into their affairs, it will be extensive and intrusive. They will also face a much higher penalty (up to a maximum of 100% of the tax evaded). Finally, HMRC could potentially 'Name and Shame' your client – by publishing their name, address etc on its website in a list of deliberate defaulters. Going forward, HMRC is likely to closely monitor your client's affairs for a number of years to ensure their ongoing tax compliance as part of its 'Managing Deliberate Defaulters' programme.
The best thing that a taxpayer can do to resolve any outstanding tax issues is to make a voluntary disclosure to HMRC. Specialist advice from OneE TDI is essential in this regard.
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How can OneE TDI help?
The LDF offers taxpayers a real opportunity to bring their UK tax affairs up-to-date without fear of prosecution. Tax (plus a related reduction in interest charges and possible penalties) can also be saved. OneE TDI is currently representing a number of clients who are going through the LDF process. We have successfully settled a number of cases where the clients involved have paid considerably less to HMRC than would potentially have been due. If required, we can also help clients to establish the 'relevant property' they require in Liechtenstein to allow them to apply to register for the LDF.
At the core of OneE TDI is a highly experienced team specialising in the management of all tax disclosures. We offer confidential, non-judgemental and invaluable advice and have a proven track record in successfully concluding matters with HMRC on behalf of our clients.
Please see the Testimonials kindly provided by our clients (or their accountants or lawyers), which confirm our levels of client service and expertise in this area.
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How can I contact OneE TDI?
If you would like a free, confidential, no obligation discussion with us please contact either Gary Rowson or Mark Taylor on 0800 652 6156 or complete and submit the online form below.
Whilst we endeavour to provide informative and accurate information, the content on this site is for general information purposes only and should not be taken to constitute tax or legal advice which must always be tailored to individual circumstances. Please contact us if you would like to discuss matters.
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Liechtenstein Disclosure Facility (LDF)