Liechtenstein Disclosure Facility (LDF)

The LDF is a special agreement with the government of Lichtenstein.  It is separate from the NDO, and is very different.   

The facility runs for several years.  You can register under the facility from 1 September 2009 onwards, but financial intermediaries in Liechtenstein have until 31 March 2015 to notify clients that they are potentially affected. Clients then have a further 18 months to ensure that they have registered with HMRC and filed the necessary report. 

So it can be seen that, unlike some HMRC 'campiagns', there is no need for hasty action.  Clients and professional advisors should use the available time to take specialist advice before committing to action.

However, it would not be wise to delay indefinitely because you will not be able to obtain the benefits of the LDF if you are under investigation by HMRC for suspected serious tax fraud, or have been arrested for a criminal tax offence.  If you are worried that the scale of your tax problem might bring within either of these categories you need to act quickly to secure your position under LDF, which brings with it the guarantee of non prosecution. Call us on 0845 643 5450 if you are worried about this.

Key benefits of the LDF

• Recovery of unpaid tax only extends back to 6 April 1999, rather than potentially 20 years in all other types of investigation.
• The LDF includes a no prosecution guarantee, so long as the funds are not connected with wider (ie non-tax related) criminal activity.
• No application of the “naming and shaming” provisions of s94 FA2009.
• There is an optional 40% composite rate of tax to cover all duties.  This could represent a major saving on the strict liability. There are also other benefits associated with the composite rate which can remove liability on predecessors in interest, eg undeclared estate liabilities.
• Taxpayers can opt in to LDF even if they are currently under investigation by HMRC, so long as they have not been formally notified that they are under investigation for suspected serious fraud or have been arrested for a criminal tax offence.
• Penalties on unpaid tax usually fixed at 10%, but can be higher under certain circumstances
• Initial discussions can be held on a no-names basis

Further Information

HMRC have published an extensive set of Frequently Asked Questions. These are subject to change so we have linked them directly to the HMRC site. To view these in a new window please click here.

The evolving nature of the LDF

The LDF is a very different process from any other tax “amnesty”. Furthermore, it is apparent that the precise meaning of the terms of the LDF is an evolving process.  We are in regular contact with the experts at HMRC and with our fellow leading practitioners on LDF as the landscape is changing from week to week.  This is because the LDF is based on a Memorandum of Understanding (‘MOU’) between the UK and Liechtenstein authorities.  The MOU deals with the main issues, but lacks the depth of detail that would be found in equivalent tax legislation, so there are therefore more issues which are open to interpretation. These then require clarification and interpretation as real-life situations are brought before HMRC for a ruling.

Current issues requiring clarification on which we are involved include:

• The extent to which taxpayers moving assets into Liechtenstein in order to come within LDF can achieve cover for UK based irregularities where there is no offshore-related irregularity.
• The status of Liechtenstein structures, especially Foundations, for UK tax purposes. They can be treated as either a company or various types of trust for UK tax purposes and the different treatment can have markedly different outcomes for the tax liability. This is a highly complex area where we have considerable knowledge and expertise.
• The liability of estates where the composite rate option (“CRO”) has not been elected.  We have become aware of a potential “banana-skin” which could lead to unexpected  liabilities remaining on estates where “actual basis” has been used.

Please call us on 0845 643 5450 for a no-obligation discussion on any area where you are uncertain.

HMRC continue to clarify issues via their Frequently Asked Questions, and it is understood that an amended version of the MOU is likely to be released around May/June 2010.

The two main lessons from all this are:

• It is possible to obtain the benefits of the LDF in a wide range of circumstances, including retrospectively by acquiring relevant property, but
• The whole process is fraught with complexities and potential pitfalls, so expert advice is essential for anybody considering an LDF disclosure.

However, the potential benefits of the LDF are very attractive, so if you have tax liabilities going back before 6 April 1999 you should definitely explore your options.

Call us on 0845 643 5450 for a confidential no obligation discussion if you think you may be affected.