The Liechtenstein Disclosure Facility - FAQs for Persons without a Liechtenstein Account
What is the Liechtenstein Disclosure Facility (LDF)?
The LDF is a disclosure process for taxpayers with UK tax irregularities connected to a bank account, investment or structure (for example, a trust, foundation or company) in Liechtenstein. Tax, interest and a penalty will be charged, but HMRC is only seeking tax for the period from 6 April 1999 (from 1 April 1999 for companies), rather than the normal 20-year period. These conditions represent very favourable terms, particularly when combined with the offer of immunity from prosecution for tax offences under the LDF.
How can I participate in the LDF?
If you do not currently have a bank account, investment or structure in Liechtenstein, you may be able to bring yourself within the LDF by now acquiring a bank account, etc in that country (see below on how to open an account, etc in Liechtenstein). This is not a "loophole" - this feature of the LDF was fully intended by HMRC.
To qualify for the LDF in this way, you must have an offshore bank account which was not opened through a UK branch or agency. For example, if you went to Guernsey and opened an account in that jurisdiction you can now acquire a bank account, etc in Liechtenstein to bring yourself within the LDF. If, however, you opened a bank account in Guernsey through a UK branch of the bank you would not qualify.
If you have a qualifying offshore bank account, you should note that you will not be able to participate if you were "under investigation" by HMRC on 11 August 2009 for this purpose that means either you had been sent a copy of HMRC's Code of Practice 9 (Suspected Serious Fraud cases) or were arrested as part of a criminal investigation.
In addition, there are circumstances where variations to the standard terms will apply:
- HMRC has written to you in connection with the 2007 Offshore Disclosure Facility or the 2009 New Disclosure Opportunity (HMRC's other disclosure facility)
- you also have an offshore bank account opened through a UK branch or agency
- your tax affairs have previously been "under investigation" (same definition as above), and you did not make a full disclosure at that time
What level of penalty will be charged?
The standard level of penalty is 10% of the tax due. There are certain exceptions to this, including taxpayers who HMRC wrote to in connection with the 2007 Offshore Disclosure Facility or the 2009 New Disclosure Opportunity.
Where income or capital gains have not been declared to HMRC due to an "innocent error", a penalty will not be charged.
Can I be prosecuted?
There is immunity from prosecution under the LDF (unlike the New Disclosure Opportunity) for tax-related offences. If the funds in your Liechtenstein bank account, etc are connected to criminal activity other than tax evasion (this includes, but is not limited to, corruption, bribery, failing to disclose assets under divorce proceedings, commercial fraud) there is no immunity from prosecution (for the tax offence or the wider criminality) and you should take legal advice immediately.
If you register under the LDF and submit a disclosure which is not correct or complete, you risk prosecution.
How do I open an account in Liechtenstein, and do I need to go there?
McGrigors has contacts with numerous banks and fiduciary companies in Liechtenstein. We can put you in touch with a financial institution that is suitable for your circumstances. Each institution has its own procedures for new clients, and not all require you to travel to Liechtenstein.
What about liabilities regarding non-Liechtenstein irregularities, bank accounts or assets?
These need to be included in your disclosure. If you have more than one bank account or structure with irregularities, different disclosure rules may apply to each account and structure. For example, in relation to bank accounts held outside the UK, but opened through a UK branch or agency, the disclosure period will be from 6 April 1990 (but unlimited in relation to Inheritance Tax Liabilities). If the same irregularities were connected to a non-UK bank account opened overseas, the disclosure (including in relation to IHT) would only need to cover the period from April 1999.
I have an offshore trust – do the trust and assets need to be transferred to Liechtenstein?
As a general rule, you do not need to ask the trustees to transfer the trust's assets to Liechtenstein – it may be sufficient to move the management of the trust there or for the trust to open a bank account there.
What if I do not have all of the bank statements or other records?
Where it is not possible to obtain copy documents, it may be appropriate to use estimates in the computations of tax due. We can advise you on the way forward, based on your specific circumstances.
When do I need to open the bank account, etc in Liechtenstein?
As soon as possible. The LDF closes on 31 March 2015. However, qualifying taxpayers should not wait until then to open a bank account, etc in Liechtenstein. If HMRC write to you in connection with the New Disclosure Opportunity before you have registered under the LDF process, you will not qualify for the full beneficial terms. In addition, registration under the LDF sooner rather than later gives you peace of mind, certainty, and the opportunity to re-structure your affairs in a tax-efficient way on very favourable terms.
What about inherited funds?
Under normal rules, there is no time limit for the recovery of inheritance tax from a deceased person's estate (and that is the position under the New Disclosure Opportunity). Under the LDF, inheritance tax liabilities will be restricted to the period from April 1999. So, if the deceased passed away before then no IHT will be payable.
Income tax and capital gains tax liabilities in relation to a deceased person can, generally, only be recovered for the six years prior to the date of death. Also, HMRC cannot impose a penalty on the executors of a deceased person.
Why should I come forward now?
The LDF runs until March 2015, but there are practical reasons for approaching HMRC now if you have a tax problem. Some of the main benefits of early disclosure are set out below:
- the ability to put your tax affairs in order, and make future planning decisions from a position of certainty (the LDF allows your adviser to approach HMRC on a "no-names" basis, and provides an excellent opportunity to put your tax affairs in order, particularly where they are complex, for example regarding your residence and domicile status)
- the longer you leave it, the more interest you will pay;
- until you register with HMRC, there is a risk that HMRC may contact you first – in which case you may not be able to use the LDF, and you also risk prosecution
- peace of mind
What if I decide not make a disclosure?
If you have a disclosure to make, but do not come forward, you will face an intrusive investigation and much higher penalty (a minimum of 30% of the tax evaded, up to a maximum of 100%) when HMRC catches up with you. In the more serious cases, HMRC may decide to prosecute. In addition, you may be subject to the new "naming and shaming" provisions being introduced, and have your details published on HMRC's website.
Also, the world is becoming a smaller place, and HMRC is signing information exchange agreements with overseas jurisdictions on a regular basis. Using the LDF enables you to use your offshore funds and/or bring them into the UK, without fear of HMRC reprisal. The LDF offers an excellent opportunity to bring your tax affairs up-to-date for, potentially, significantly less than the amount due under the normal rules.
What should my next action be?
You should contact a specialist for advice on your particular circumstances, or to guide you through the disclosure process.
Is what I discuss with my adviser disclosable to HMRC or any other authority?
This depends on whether "legal professional privilege" (LPP) applies. If you consult a law firm, either in relation to your tax affairs or wider criminality, LPP applies. If LPP applies, communications between you and the law firm are absolutely protected from disclosure without your consent. In October 2009, the High Court confirmed that LPP does not apply to accountancy firms.
How can McGrigors help me?
McGrigors has a team of experienced former HMRC investigators who can assist you with the LDF process. Our investigators, who also have Big Four accountancy firm experience, are part of a multi-disciplinary team with lawyers in our Tax Disputes and Investigations team. For a confidential discussion, please contact Phil Berwick on + 44 (0)207 054 2548, or call our 24-hour helpline on + 44 (0)207 054 2569. Alternatively, you can email phil.berwick@mcgrigors.com