Disclosure in demand

01 May 2013 Dr Ariel Sergio Goekmen

Disclosure in demand

Dr Ariel Sergio Goekmen on living with the revised LDF directive.

The Liechtenstein Disclosure Facility (LDF) is a programme that permits UK-resident taxpayers to regularise their tax affairs without risking prosecution for tax crimes. This feature is unique to the LDF, and HMRC has not offered the same terms in any programme for other jurisdictions. The LDF is available until April 2016 and has so far seen GBP445 million paid in taxes to HMRC, with more than 2,500 taxpayers participating.

Time passes quickly, and clients tell me it can be difficult to obtain independent advice, so now is the time to help UK clients who could still benefit from the LDF. They must act before payments are made automatically by their banks under other available schemes. None of these other schemes guarantee that the client will not be prosecuted for criminal tax offences. It is therefore vital that advisors act now in the interest of relevant clients, to save both money and their reputation.

Using the LDF

On 1 September 2012, the amended UK Tax Information Exchange Agreement Ordinance dated 31 August 2010 (LGBl 2010 No 254) entered force, bringing in several changes. Using the LDF still requires a Liechtenstein footprint. 

  • For bank accounts, 20 per cent of worldwide relevant bankable assets must be deposited in a Liechtenstein bank. This is not necessary if the individual holds at least CHF3 million of any asset in a Liechtenstein bank account. The assets have to remain at the bank for 24 months to ensure that a meaningful relationship has been established. 
  • For trusts or endowments where at least one trustee is resident in Liechtenstein, 10 per cent of the assets affected by the disclosure must be in a Liechtenstein bank. If the client has more than CHF1 million of assets at the bank, this requirement is waived. The assets have to remain at such a bank for 24 months to ensure that a meaningful relationship has been established.
  • For a legal entity domiciled abroad but managed by an executive board where most members are from Liechtenstein, 15 per cent of the relevant assets have to be deposited with a Liechtenstein bank, unless more than CHF1 million of assets are deposited there. The assets have to remain at such a bank for 24 months to ensure that a meaningful relationship has been established.
  • For a Liechtenstein insurance company, a premium of at least CHF150,000 must be paid to be eligible.

To benefit from the LDF, the same simple steps as before must be followed. Either the interested party turns directly to a Liechtenstein provider who helps them establish a footprint and introduces them to a competent UK advisor who assists with the declaration to HMRC, or the interested client contacts one of the many UK advisors who specialise in helping with the LDF directly.

One advantage of the LDF is that it is applicable to undeclared assets worldwide. I recently had a case of a client who decided to keep his Swiss accounts undeclared and pay the withholding tax under the Swiss agreement by the end of May 2013. But the client did not feel comfortable about his property in the South of France, which he had bought some time ago and now wished to pass on to his next of kin. By establishing a footprint account he was able to go through the LDF and declare the asset and regularise it. He is now free to hand it over to whomever he desires with a clear conscience and proper documentation.

Highly rated

When the new guidelines took effect there was initial hesitance about the new rules, but registrations soon returned to their previous levels. One change is that the amounts registered now tend to be larger. Before 1 September 2012 the amounts I was asked to help regularise were usually below GBP1 million. Now I am dealing with larger sums – around GBP3 million. When the Swiss agreement comes into effect, I expect even larger clients to consider ways to reduce tax payments and guarantee freedom from criminal prosecution. Many experienced advisors still rate the LDF as the easiest and fastest way to regularise undeclared assets.

Liechtenstein has now also concluded a double-tax treaty with the UK. Even before this, it was possible, under the memorandum of understanding between Liechtenstein and the UK, to use, for example, a Liechtenstein foundation as a viable alternative to a trust.1

If properly set up, Liechtenstein foundations can be a good alternative to trusts, and HMRC recognises this from a tax viewpoint. This provides a unique planning opportunity for a structure established under civil law. It can also be advantageous for bare trust structures and nominee arrangements, where a simple and cost-efficient alternative to common law may be desirable.

As a banking and wealth-planning location for UK clients, Liechtenstein has much to offer. It continues to be an attractive hub for UK solutions, including the LDF and much else.

Authors

Dr Ariel Sergio Goekmen

CPD Reflective Learning