On 24th August 2011 an agreement was reached between the governments of the UK and Switzerland to introduce a mandatory withholding tax on undeclared Swiss bank accounts operated by UK resident individuals. The agreement preserves anonymity for the account holders from the UK tax authority while allowing them to regularise their tax affairs.  

The new withholding tax will apply to funds in bank accounts and securities portfolios held at 31st December 2010 and remaining open at 31st May 2013, when the withholding tax will first be applied  

There will be a one off historic withholding tax of between 19% and 34%, depending on how long assets have been held and then further withholding taxes on future income and gains at rates of 48% for interest, 40% for dividends and 27% for capital gains. These latter rates represent a small discount to the highest rates of tax for such income and gains in the UK and reflect the fact the withholding tax will result in the tax being paid slightly earlier than would be the case under the standard UK self assessment system of taxation.  

The one off withholding tax to be applied is designed to settle all tax, interest and penalties. This will include income tax, capital gains tax, corporation tax, inheritance tax and VAT.  

The Swiss banks have collectively agreed to make an upfront payment to the UK of CHF 500m in respect of the withholding tax, this amount to be set off against the actual withholding tax collected from customers.  

Importantly, the agreement needs to be ratified by the parliaments of each country and at this stage the text of the agreement has not been published; it is not yet clear, for example, whether the agreement will apply in full to those who are UK tax resident but not domiciled in the UK but it appears that “non doms” may be able to opt out of the withholding taxes.  

In many cases we expect bank customers will want to understand the comparative costs and issues associated with regularisation of the past via the one off historic withholding tax of between 19% and 34% against a voluntary disclosure of their Swiss bank account using the Liechtenstein Disclosure Facility

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Further details of how the agreement will operate: The timetable, FAQs.

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