Tax expert warns Liechtenstein disclosure facility replacement will be tougher

Anyone with undisclosed overseas income, gains or assets will be wise to make use of the Liechtenstein Disclosure Facility while it lasts, according to tax experts at Baker Tilly, reports FT Adviser.

Andrew Hubbard, a partner at the firm, warned advisers that everything he has heard has led him to conclude that life for tax evaders will only get tougher following the phasing out of the facility.

The Liechtenstein Disclosure Facility is the fastest way to settle your UK tax matters on the most favourable terms. It is based on an agreement between the UK and the Principality of Liechtenstein which is valid from 1 September 2009 to 31 December 2015.

Mr Hubbard said there have been concerns, not least from the public accounts committee, that the LDF was too soft an option, particularly with its guarantee of non-prosecution.

So he said it is not surprising that it is being withdrawn and that whatever new opportunity replaces it will be less generous.

“There will be those who will still want to keep their heads down on the basis that in a few years’ time the mood will change again and there will be a more attractive offer on the table.

“In my view that would be a very high risk strategy.”

Since its inception in September 2009, more than 6,500 people have registered to participate in the Liechtenstein Disclosure Facility. More than 5,900 disclosures have been received by HM Revenue and Customs, with over £1.6bn raised so far.

The final date for registration for the LDF was due to be April 2016, but in the Budget, it was announced that the date was being brought forward to 31 December 2015.

The terms of the LDF are a relatively generous way of enabling the non-compliant to regularise their tax affairs: those making a disclosure and who qualify for the full favourable terms only have to settle up for the years from April 1999 onwards.

Penalties were only 10 per cent, although these have now risen for more recent years, and there is a commitment from HMRC not to commence a criminal investigation.

In 2017, once HMRC starts to receive information under UK FACTA or the Common Reporting Standard, Baker Tilly claim no further disclosure facilities are likely to be offered and the liabilities arising from settlements with HMRC could mean that the non-compliant risk losing not only all of their offshore assets, but potentially more, once penalties are taken into account.

HMRC will receive large amounts of data from over 90 countries, including all EU countries and Switzerland, under the various Exchanges of Information Agreements from 2016 onwards, and will be able to use that data to launch investigations into the tax affairs of individuals.

From HMRC’s perspective, the non-compliant have had plenty of time to regularise their affairs under LDF, so they are unlikely to show any leniency to those who still fail to do so.

Baker Tilly stated that advisers should expect HMRC to be looking, inter alia, at undisclosed distributions to UK beneficiaries from offshore trusts, 10-year charges for trusts, which have not been reported, and into the residence and domicile status of individuals.

Mr Hubbard said: “Anyone with undisclosed overseas income, gains or assets will be wise to make use of LDF while it lasts.”