Swiss bank accounts levy – a cautionary tale
A UK taxpayer has lost her claim for a tax refund after her Swiss bank transferred £57,865 from her account to HMRC without her permission, even though her UK tax liability was £7,000 or less.
Karin Vrang, a Swedish banker worked in Switzerland between 1998 and 2005 and her salary and pension from that employment was credited to her Swiss bank accounts. In 2005 she moved to the UK. She did not have a UK tax advisor.
The Swiss bank removed £57,865 from these bank accounts under the terms of the Swiss-UK Tax Cooperation Agreement (‘the Agreement’) because she had failed to answer two letters.
Ms Vrang received two letters from the bank stating that under the Agreement she must either:
- Authorise the Swiss bank to provide details of the Swiss assets to HMRC in the UK, or
- Be subject to a one off payment to clear past unpaid tax liability and/or a withholding tax liability on income and gains. The amount of the charge is calculated by using a formula set out in the Agreement.
Ms Vrang did not respond to the first letter because it had said that the bank would follow up with further information in a second letter. Ms Vrang did not respond to the second letter. She explained:
“Had I fully understood and appreciated the ramifications of the letter and/or if I had understood the consequence of not returning the forms, I would not have simply ignored matters.”
She had also assumed, based on her experience of working in the financial sector that “a regulated financial entity, could not offer a default option (not replying) where clients would be in a worse position than if they had acted on the letter.” The letter did not say what the deduction would be nor highlight “the potential disastrous consequences of my failing to do anything.”
At the time, this seemed less important in the light of her then “traumatic personal circumstances”: the ending of a long-term relationship with her partner, the need to move house and to resolve the administrative consequences of the split, “undoubtedly played a role in my a failure to respond to this letter.”
HMRC refused to refund the difference between the amount transferred to them by the Swiss bank and the actual amount of tax due, despite the significant difference in value. Ms Vrang appointed a tax advisor and contested HMRC’s decision at the Administrative court under a number of legal grounds, all of which have failed.
The case represents a cautionary tale to all non-doms who have not appointed a UK tax advisor. Without advice, the UK rules may penalise those holding assets outside the UK, even where there are genuine commercial reasons for doing so. Had HMRC been enforcing a debt from a UK taxpayer by taking money from his or her UK bank account, there would have been greater safeguards in place for the taxpayer, including a face to face visit from HMRC.
Please contact Mark Davies on 0203 008 8102, Jon Elphick on 0203 008 8103 or Priya Dutta on 0203 008 8108 if you would like to discuss how the UK tax rules may affect you and your overseas assets.