The Liechtenstein Disclosure Facility (LDF) is closing

In recent years HMRC has successfully operated a number of different disclosure facilities through which individuals could come clean on undisclosed income and gains and a variety of other potentially difficult tax problems involving non-UK assets. Most notably, HMRC introduced the Liechtenstein Disclosure Facility (LDF). The facility allowed taxpayers holding offshore assets in September 2009 and a current Liechtenstein asset to disclose historic tax liabilities back to an agreed cut-off point of April 1999.

The LDF offers certain benefits: capped penalties of 10% up to April 2009 and reduced penalties thereafter, a limited period of liabilities, favourable non-statutory terms for settlement and a streamlined reporting process. It proved to be far more popular than expected by HMRC, which went on to introduce similar facilities for the Crown Dependencies.
HMRC has collected in excess of £1.3 billion of additional tax through these facilities. They have proved an invaluable method for persuading taxpayers with hidden assets or transactions that have occurred outside the UK to come clean. Such issues were always difficult for HMRC to crack via conventional enquiries.

The end of an opportunity

HMRC has announced that the LDF and all other facilities will end on 31 December 2015. This change of plan has involved bringing forward the end date for the different facilities. But why bring to an end to such a useful source of additional revenue?

HMRC has negotiated a series of agreements with upwards of 94 other countries to introduce formal procedures for the automatic exchange of financial reporting information. The UK Foreign Account Tax Compliance Act (FATCA) agreements follows similar laws introduced in USA. From 2016, the UK will receive details of financial information from 1 July 2014 for personal bank accounts, trusts, companies and other structures where there is a UK beneficial owner, beneficiary or settlor involved.

HMRC now believes that it does not need to offer inducements to persuade taxpayers with non-UK income or assets to come forward; it will receive the information through the new FATCA regime. HMRC are allocating significant additional resources to new specialist teams set up to gather and interrogate the FATCA reports and as a result there will be a significant increase in tax investigations and, possibly, criminal prosecutions for tax offences.

Last Chance Saloon

The terms for any replacement disclosure facilities will not be as generous as the LDF. Any clients who suspect they may have a problem should seek advice. There are often old arrangements such as trusts set up outside the UK that have not been reviewed for many years but changes in circumstances, out of date advice or new trustees has meant that there are tax problems needing attention. Some clients know they have a problem but will bury their head in the sand hoping it will go away.

It will be far better to resolve these issues through the LDF than wait for HMRC to make enquiries.

We are happy to meet any client, trustee or person involved in an offshore structure on a no-names basis to talk through any concerns they have. It will provide an opportunity to understand whether there is an issue to resolve and the options open to them.




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