The Government has launched a crackdown on offshore tax, announcing an agreement with Switzerland to help claw-back billions in unpaid tax.
Under the new terms, UK taxpayers with funds in Switzerland will face a one-off deduction of between 19 per cent and 34 per cent to settle past debts.
Those who have already paid tax will be unaffected.
As an act of good faith Swiss banks will make a one-off payment of 500 Swiss francs - approximately £385 million – to the Treasury.
From 2013, a new withholding tax of 48 per cent on investment income and 27 per cent on gains will ensure the effective future taxation of UK residents with funds in Swiss bank accounts.
The move was immediately criticised by Sam Bowman, Head of Research at the Adam Smith Institute, one of the world’s leading think tanks on government policy.
“Yet again, the Chancellor of the Exchequer has shown his colours as a politician rather than an economist. These measures are anti-growth”, he told Huff Post UK.
Arthur Rutishauser, a journalist on Swiss newspaper Tages-Azeiger and a banking expert, said Swiss banks are likely to honour the agreement to help eliminate their negative reputation.
However with two years before the agreement will be enforced, Rutishauser said it is likely that the people that this agreement wanted to target will have already started to transfer money to other tax-friendly regions, such as the Cayman Islands.
But George Osborne, Chancellor of the Exchequer, highlighted the importance of this agreement in light of the economic climate, saying:
"Tax evasion is wrong at the best of times, but in economic circumstances like this it means that hard-pressed law-abiding taxpayers are forced to pay even more.”
The Treasury expects to reclaim £5 billion as a result of the proposed deal – over five times less than the amount which has gone unclaimed from UK taxpayers due to write-offs and remissions in the last five years.
The agreement comes a day a Taxpayers’ Alliance report showed £27.4bn in tax was unclaimed by HMRC since 2007.