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  1. Wealth
  2. Tax
July 22, 2010

I Liech That!

By Spear's

Freddy Barker says carpe diem to take advantage of the Liechtenstein Disclosure Facility: it’s never been easier to come clean
THE MOMENT OF truth has arrived for UHNWs with undisclosed offshore assets. HMRC is offering a unique opportunity to come clean on an extremely favourable basis. The Liechtenstein Disclosure Facility (LDF) promises peace of mind at minimal tax penalties, a guarantee of no prosecution, and exemption from naming and shaming. ‘It is a once-in-a-lifetime opportunity,’ beams Steve Simmons, the HMRC mastermind behind the scheme.

The realpolitik of the offer is that the cash-strapped British Government is trying to repatriate offshore funds in order to generate extra tax revenue. Cameron and co. need the windfall to alleviate the ever-burgeoning national debt, which at £1.4 trillion (by 2015) will be bigger than South America’s GDP, or 32 times the size of Bill Gates’ wallet.

Liechtenstein, on the other hand, is jumping the gun on its tax-haven rivals. As an Alpine nation of just 35,000 souls, it is dependent on financial services (29 per cent of GDP and 14.3 per cent of jobs) to keep the economy ticking over. Faced with the West’s declaration of economic warfare on tax havens, the principality is ‘grasping the nettle and adopting a white money strategy,’ says Simon Airey, director of DLA Piper’s national tax-investigations practice.

UHNWs may be sceptical of the offer, however, as they have seen its like before: the Offshore Disclosure Facility (2007) was so unpopular that it raised a mere £400 million. Its successor, the New Disclosure Opportunity (2009), was scarcely better; no figures were even released for it.  

But HMRC has learnt its lesson. It now appreciates that if it is to woo UHNWs out of hiding, it must be much more radical. Thus the new deal offers a shorter look-back period of ten years compared to the ODF and NDO’s twenty, and a lower penalty of 10 per cent plus interest on unpaid taxes.

To give you an example of how this works, consider an inheritance package of £10 million. Assuming that the undisclosed assets were passed down in 1990 and have grown to £20 million since, then after tax, interest and penalty payments, an UHNW would receive £16.6 million under the LDF — a lot more than the £2.8 million that they would receive under normal circumstances.
HMRC HAS MADE it much easier for the super-rich to explore the possibility of disclosure. It has set up a Liechtenstein helpdesk (0845 600 4680) which, Simmons assures me, can be contacted in total anonymity. Spear’s readers considering the carrot may also want to consider the stick. ‘We’re in a different world now,’ warns Stephen Timms, financial secretary to the Treasury under the outgoing Labour government. ‘I want it to become increasingly clear to taxpayers and tax agents that for tax cheats, the game is up.’

To that end, HMRC has issued crackdown measures. It has started to track electronic transfers to and from the UK. It has issued compulsory disclosure notices to 308 financial institutions. It has set up a Stasi-style hotline. And most alarmingly, it has won powers to impose 200 per cent fines and prosecution on convicted evaders. ‘More has been done to undermine banking secrecy over the past six months than over the past 60 years,’ says Simon Airey of DLA Piper.

Combine the HMRC clampdown with increased data theft at the private banks (most recently at HSBC) and the signing of over 300 tax information-exchange agreements in the past year (75 per cent of the total in existence), and the super-rich are right to feel that the writing is on the wall for undisclosed assets.

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Those tempted to come clean should not wait for the LDF closing date of 31 March 2015, however, for the scheme is only open to those making voluntary disclosures. If HMRC discovers malpractice in the meantime — which is likely, given the worldwide crackdown — then one gets none of the benefit and all the pain.

With the time imperative, UHNWs with undisclosed assets will be relieved to hear that Liechtenstein is a solid bet for their money right now. ‘Liechtenstein’s efforts regarding compliance and anti-money-laundering are among the highest level in the world,’ says Prince Michael von Liechtenstein, the president of Industrie- und Finanzkontor (one of the nation’s leading family offices).

The enthusiasm is echoed by Reto Strub of the LGT Group. ‘We do not have a single penny of government debt. We have political stability since the Prince’s family has been here for over 800 years, and we have economic stability in that we use the Swiss franc.’ Moving on to extol his bank’s strengths, Strub says: ‘We are very risk-averse. We do not offer investment banking, but we offer all other banking services. What’s more, we do this from a very stable platform. We operate a tier one capital ratio of 1:18, whereas UBS, for example, has a 1:8 ratio.’

With security like that, LGT and the LDF look like a winning combination. UHNWs suffering from sleepless nights should take a leaf out of Liechtenstein’s book. Grasp the nettle. 

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