Sources said the deal, which had been anticipated for weeks, could mean as much as £6bn more annually coming in to HM Revenue & Customs.
The agreement comes fewer than 10 days after a similar deal was struck between Switzerland and Germany.
Some accounting industry sources said the Treasury statement announcing what it called a "historic agreement" was frustratingly short on the detail as to how the process would work in practice –possibly intentionally, ahead of its formal ratification.
In its statement, the Treasury noted that the agreement would tackle offshore tax evasion while also resolving what it said was "the long-standing abuse of Swiss banking secrecy by those who seek to conceal the proceeds of tax evasion".
This is a reference to Switzerland’s banking laws, which for decades have fiercely guarded the secrecy of foreigners with bank accounts there, in spite of growing pressure from other governments to hand over details of such account holders on grounds of suspected tax evasion.
The agreement will take full effect in 2013.
Under the terms of the agreement, existing funds held by UK taxpayers in Switzerland will be subject to what the Treasury says will be "a significant" one-off deduction of between 19% and 34% to settle past tax liabilities, leaving those who have already paid their taxes unaffected. The exact amount will depend on how long they have had the account.
"As a gesture of good faith, Swiss banks will make an up-front payment from Switzerland to Britain of SFr500m (£384.3m, $629.1m)", the Treasury said in its statement, which may be viewed here.
Withholding tax of 48%
Then, from 2013 onwards, UK taxpayers with accounts in Switzerland will pay a new withholding tax of 48% on all investment income and 27% on all gains.
This, the Treasury said, will be accompanied by a new information sharing provision that it noted would "make it easier for HMRC to find out about Swiss accounts held by UK taxpayers".
"This power is in addition to, and goes further than, the provisions for information exchange under the UK-Switzerland Double Taxation Agreement," the Treasury statement noted.
If the taxpayer agrees to authorise a full disclosure to HMRC, the new charges would not apply.
Time for ‘a long think’
John Cassidy, tax investigations and dispute resolution partner in the London office of accountants PKF, said the agreement "means that anyone who has a Swiss account that has gone undisclosed in the past will have to have a long think" about what to do.
"Basically, they have three options: to use the Liechtenstein Disclosure Facility (LDF) to disclose their undeclared assets, to sit back and do nothing, and have the Swiss banks begin levying a hefty tax on them and handing it over to HMRC; or to move their assets out of Switzerland, an action that the Swiss will report to the UK authorities.
"Either way, the world has just shrunk in terms of the options available to people who are trying to avoid paying tax."
Frank Strachan, head of tax dispute resolution at London-based solicitors Lass Salt Garvin, said there was relief in that the terms of the agreement at last were out, as those individuals who are keen to come clean about their undeclared Swiss assets at last had all the facts as to which would be the most cost effective disclosure route to take.
From his point of view, he added, this remains for most people the LDF – a relatively generous "tax amnesty" programme currently under way in the UK, which involves tax evaders interested in coming in from the cold declaring their offshore assets through financial insitutions based in Liechtenstein, the former tax haven and an Alpine neighbour of Switzerland’s.
"I’m pleased to see that the LDF terms remain unaltered for those holding Swiss assets," Strachan added.
"I expect to see a significant increase in LDF registrations over the coming days and weeks."
‘Pragmatic response’
Tom Rowbotham, partner in the tax dispute resolution group at Deloitte, said the agreement "represents a pragmatic response from the UK government aimed at securing what they hope to be billions of pounds of tax that would otherwise remain uncollected, and at the same time allowing Switzerland to maintain banking confidentiality.”
He noted that the agreement, as currently proposed, outlines a number of factors that will need to be taken into consideration, and which "will not become clear until the agreement has been formally signed and the detailed text issued", which he noted will take at least a few months’ time.
Latest step in crackdown
The agreement with Switzerland is the latest step in a crackdown on offshore tax evasion by HMRC which began in 2007. It includes the Liechtenstein Disclosure Facility, which runs until the end of March 2015; the creation of specialist teams of investigators assigned to catch those hiding money offshore; and ongoing work aimed at putting in place tax information sharing arrangements with other countries.
Strachan, meanwhile, believes that the agreement with Switzerland "won’t be the last" HMRC will sign with an offshore jurisdiction, although he believes that for the Revenue,"Switzerland was the holy grail" in its efforts to root out tax evaders.
"HMRC will perceive this agreement as a watershed moment in countering offshore tax evasion," he added.
