Transcript Dividends - Barnes Roffe

BARNES ROFFE LLP
Offshore Tax Planning
DARTFORD FOOTBALL CLUB
21 MAY 2009
Residence
Assessment of Taxes
• Capital Gains Tax
Resident or Ordinarily Resident, and:• Domiciled: Worldwide gains
• Not domiciled: UK situs property, with
remittance basis available for non UK
situs property
Residence
Assessment of Taxes
• Income Tax
a) Resident or Ordinarily Resident,
Domiciled: Worldwide income
b) Not Ordinarily Resident: Remittance basis
available on certain non UK income
c) Not domiciled: Remittance basis available
on certain non UK income
Residence
Assessment of Taxes
• Inheritance Tax
a) Domiciled: Worldwide assets
b) Not domiciled: UK situs assets only
Residence
Residence
• Not defined in legislation
• Different depending on arrival / departure
• Arrival: 90 days PA may be enough
• Leaving: 70 days PA may be enough
• If Ord Res (below) leaving for occasional purpose
may still leave you resident
• A whole year away should make you non resident
Residence
Ordinary Residence
• Not defined in legislation
• Common sense can apply
• Resident with some degree of continuity
• No cases where ordinarily resident without
being resident
Residence
Relieving Provisions
• S830 ITA: If working abroad ignore UK
accommodation
• S831 / S832 ITA: If in UK temporarily not
intending to stay, ignore UK accommodation
• This applies only to certain income &
circumstances
• UK accommodation is relevant if purpose not
temporary
Residence
Cases: Shepherd (2006)
• Airline pilot set up home in Cyprus
• In 99/00 in UK < 90 days
• Had UK residence & used it habitually
• Purpose (landing planes) not temporary
Residence
Cases: Gaines Cooper (2007)
• Was held resident because had not left UK
for more than a temporary purpose, and
used UK home
• HMRC included days of arrival & departure
(outside IR20 guidance), but even in a year
with < 90 days, still held him resident
Residence
Cases: Grace (2008)
• BA pilot, South African, set up home in SA and
family & ties were there. Had houses at Gatwick
and SA & used both.
• Here > 90 days (including arrival / departure).
• Found not resident (temporary purpose)
• HMRC’s argument that Ord Res, not Res, was
thrown out.
Residence
Summary
• UK accommodation can be important
• Its not only factor
• If leaving UK, show a break in habit
• S831 / S832 ITA can give relief if here
temporarily
• A home abroad can help
• HMRC’s position in IR20 is often without legal
basis and can’t be relied upon
• 183 & 90 day rules are guides
Domicile
Three Types
• Origin
• Choice
• Dependency
Acquiring a new domicile is difficult ~ loads of case law
Domicile
Origin
• At birth (father’s) unless parents unmarried
(mother’s)
• Continues until acquire new domicile of
choice or dependency
• Default domicile if a domicile of choice or
dependency ends without a new one starting
Domicile
Choice
• Must be > 16 years
• Need new residence plus permanent
intention (selling old residence helps)
• Not enough to leave UK permanently for
destination(s) unknown
Domicile
Dependency
• Must be < 16 years for this to displace
origin
• Child acquires if parent has new domicile of
choice
• At 16 years becomes a domicile of choice
The Remittance Basis
Income / Gains Res, not Dom
Relevant
foreign income
Overseas
earnings **
Foreign gains
Res not Ord Res
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** Definition not the same. Better if not Ord Res
What is Remittance?
• S809L ITA 07 conditions A & B, or C, or D
• Focus on A & B only
• Effect: Money &/or Property derived from
offshore income / gains brought to UK by a
“Relevant Person”, or provides service for
or otherwise benefits a “Relevant Person”.
• “Property” is identified with the income /
gains used to acquire it
Remittance Basis
• Relevant Person is the taxpayer, spouse,
minor child or grandchild of taxpayer.
• Remittance in specie taxed post FA2008.
Previously only taxed proceeds on a
subsequent sale of property in UK.
Remittances
TP
Other
Was OK. Now not
If “Other” is a relevant person
Remittances
TP
Rel
Person
School fees for
Minor grandchild
Non Rel
Person
Child of Majority
Also a “no-no”
Remittances
TP
Anyone
Proceeds
Asset
Rel
Person
Sale
Possibly OK
Remittance Basis
• Claims (S809B ITA) must state whether not
Ord Res, Non Dom, or both.
• No claim needed if offshore (“o/s”) income
& gains do not exceed £2000.
• Planning point: If o/s income & gains are,
say, £2,400, remit £400. Then apply
remittance basis without claim. Only £400
is taxed.
Remittance Basis
•
No claim required if no UK source income
and either:a) < 18 throughout the year; or
b) > 18 and UK resident less than 7 of
previous 9 years.
From now on assume a UK res non
domiciliary, here 7 out of 9 years and
claiming remittance basis.
Remittance Basis
• Consequences of Claim
• Foreign income / gains taxed under
remittance basis (else arising)
• Loss of SPA / AEA
• For non doms here 7 ex 9 years, £30,000
charge
Nomination
• £30,000 represents a tax charge on
unremitted income / gains. Remittances are
taxed in excess.
• Must nominate income / gains on which the
charge applies (such that nominated income
/ gains at normal tax rates = £30,000)
Nomination
• If nominate too little (say £1), you are deemed to
have nominated such income as would lead to a
£30,000 charge.
• Such “deemed nomination” occurs whether you
have such income or not!
• The nomination “franks” remittances of
nominated amounts. Could cover £120,000 worth
of foreign dividends if own < 10%.
• Nominate as you please.
Remittances
Taxed if remitted
RB income/gains
Nominated
£30,000 charge to leave offshore
Remit Nominated Amount?
• Remit RB income / gains ~ taxed as what
they are, unless from a “mixed fund”
• Remit nominated income / gains, when you
have unremitted RB income / gains ~ all o/s
income / gains re-characterised for ever.
• Taxed on remittances per “ordering rules”.
Ordering Rules
1) Foreign earnings not taxed
2) Foreign trade, then rent, then investment
income not taxed
3) Foreign gains not taxed
4) Foreign earnings taxed
5) Foreign trade, then rent, then investment
income taxed
6) Foreign gains taxed
Ordering Rules
• Remittances matched against o/s income /
gains of year of remittance, then previous
year, then the year before that etc…
Ordering Rules ~ Example
• Igor is non dom RB user, UK res for 10 yrs
• In 2009/10 he remits £1m, capital gains of
many years, but inclusive of 2008/09
nominated amounts
• In 2009/10 had £200K o/s income & £600K
o/s gains
• In 2008/09 had £300K o/s income & £500K
o/s gains
Ordering Rules ~ Example
•
a)
b)
c)
•
•
Taxed on £1m remittance as follows:£200K 09/10 income @ 40% = £80K
£600K 09/10 gains @ 18% = £108K
£200K 08/09 income @ 40% = £80K
Total of £268 is lower than the expected
£180K
This applies for ever (2010/11 50% rate!)
Ordering Rules ~ Example
Planning Points
• Deemed nominated amounts do not count
when determining whether nominated
amounts have been remitted
• Nominate £1 only
• Do not remit nominated amounts!
Mixed Funds
• Pre FA 2008 rules: Remittances presumed to
be income to extent income paid into fund.
• New rules for 2008/09 & later.
• S809Q(4) ITA imposes order when
remittance from a mixed fund.
Mixed Funds
Mixed Fund:• Income from more than one year &/or;
• “Capital” from more than one year &/or;
• Income & capital &/or;
• Different types of income.
Mixed Funds
Order:• Employment income, not taxed
• Trade, rent, other, not taxed
• Gains, not taxed
• Employment income, taxed
• Trade, rent, other, taxed
• Gains, taxed
Mixed Funds
Application:• On a year by year basis;
• Previously all years aggregated.
• This leads to a curious outcome:-
Mixed Funds
Curiouser & Curiouser:• Suppose income / gains in a mixed fund: £X
• Reinvest in an asset: £X
• Sell in later year for £Y.
• Ordering rules in year of remittance say £(Y-X) is
capital gain.
• £X= Capital. Not taxable?
• Consequence of use of “capital” in S809Q ITA.
Avoid Mixed Funds
Hive off income
Capital
Income
Segregation Still OK
Remit Capital
Remittance ~ Reliefs
• Remittances taxed in year of remittance.
• Not taxed on remittance of income arising in a
year of non residence.
• For income arising when resident, but remitted
when not resident, not taxed unless non resident
for temporary purpose, come back within 5 years,
and resident for 4 of 7 years before leaving ~ in
which case, taxed in year of return.
Remittance ~ Reliefs
• In specie remittance OK if:• Jewellery, watches, clothing bought ex
foreign trade / rent / investment income, and
for use by taxpayer, spouse, minor child or
minor grandchild.
• Relief lost if used by persons other than
those.
Foreign Chargeable Gains
• Remittances of non dom RB user gains
(realised whilst resident) are charged.
• Not charged if remitted whilst non resident.
• S10A TCGA could charge in year of return.
• 2007/08 & prior gains get indexation to 5th
April 1998 when remitted.
Foreign Capital Losses
• To 5/4/08 o/s losses for non doms not
available.
• Now available if no S809B ITA claim
(because on arising basis like anyone else).
• Now also available on S809B claim if on
first such claim make election under S16ZA
TCGA.
Foreign Capital Losses
Effect of election ~ order of set off
• All UK & o/s capital losses aggregated
1) Set 1st vs o/s gains in year, remitted in year
2) Set 2nd vs o/s gains in year not remitted
3) Set 3rd vs UK gains arising in year
One off chance to elect (on 1st RB claim), applies
for ever. Could be good or disaster!
Foreign Capital Losses
Effect of election ~ Example 1
UK Gain £30,000
o/s unremitted gain £30,000
UK Loss (£30,000)
Tax if election made: £5,400
Tax if election not made: £nil
Foreign Capital Losses
Effect of election ~ Example 2
UK Gain £nil
o/s remitted gain £30,000
UK Loss (£nil)
o/s loss (£30,000)
Tax if election made: £nil
Tax if election not made: £5,400
Income Tax Shelter via Trust
• UK Res non dom settlor (always non dom,
analysis for UK doms very different)
• Non resident trustees (else trust taxed in UK)
• Discretionary (IIP beneficiary taxed)
• Foreign source income (S720 ITA)
• Settlor / spouse excluded (S624 ITTOIA)
• No UK source income if any UK beneficiary to
avoid trust rate (S812 ITA)
• UK source income only taxed at source if no UK
resident beneficiary (S811 ITA)
Income Tax & Trusts
UK Income
Taxed @ trust rate
If a UK beneficiary
Trust
Only taxed at
source If no UK
beneficiary
O/S Income
Taxed on UK IIP beneficiary
Or UK discretionary beneficiary
On receipt
The restriction on UK source income can be avoided via use of offshore company
Income Tax & Trusts
UK Income
Trust
O/s Co
UK income has
Become foreign
Source income
Income Tax & Trusts
• Exclude settlor / spouse to avoid S720 et
seq ITA 2007, S624 ITTOIA;
• For o/s income in discretionary o/s trust, tax
deferred until distribution to UK resident
discretionary beneficiary (subject to
remittance basis).
• Ultimate deferral if emigrate.
CGT Shelter & Trusts
• Need non resident trustees for o/s trust
• If transfer of UK assets, CGT triggered
• If transfer of o/s assets, CGT triggered, but
not for remittance basis user
• Can use assets anywhere
• If a UK dom settlor, exclude settlor,
children, grandchildren & spouses to avoid
S86 TCGA attribution of trust gains
CGT Shelter & Trusts
• Capital payments taxed on UK bens (S87 TCGA)
• ..but gains not attributed to non dom settlor under
S86 TCGA
• S87 gains subject to S91 TCGA “parking charge”
(max 28.8% (+10% for 6 years))
• Thus CGT can be deferred until paid out
• If paid to settlor, remittance basis applies
• Hold offshore and emigrate?
Use of Offshore Company
• Residence determined by location of management
and control
• Income arising from co subject to remittance basis
• Gains (non trade assets) attributed to participators
(S13 TCGA), even if non dom post FA 2008
• Need 10% or more of a “close” company
• Remittance basis applies to attributed gains on non
UK assets (S14A TCGA)
Problems with Offshore Co.s
• S720 ITA et seq (transfer of assets abroad)
• Motive defence if a proper trade
• Bought co for cash? ~ S720 won’t apply as
the transfer of UK funds has not caused
income to flow into company
Offshore Funds
• Collective investment scheme within FSMA 2000
• Treated as o/s company
• If non distributor (<85% income distributed), sale
gains treated as income (mostly) gains (OIGs)
• CGT risk on death ~ no CGT free uplift if non
distributor
• Income tax delayed until remitted (compare trusts
where taxed as arising on interested settlor, S624
ITTOIA).
• Tax deferral achieved (until emigration?)
Life Policies
• O/s life policies available on any third party life
• CGT chargeable if bought for consideration, else
not
• If not acquired for consideration, gains on
maturity / surrender taxed as income
• 5% PA tax free capital remittance (S507 ITTOIA)
• Unlike trusts, income tax delayed, and tax free
remittances available
CGT, Trust + Company
S720 ITA risk
On income
Trust
S13 TCGA
Gains attributed
To trust
Not settlor
O/s Co
Income
CGT, Trust + Company
• If S720 ITA is in point, company income
assessed on settlor / transferor
• This would offset any S624 ITTOIA charge
on interested settlor on income received
from company
CGT, Trust + Company
Strategy
• Company retains income (avoid S624 ITTOIA)
• Trust “income” on sale of company
• Trust gains to settlor only via S87 TCGA, not S86
• Thus remittance basis applies
• Going non resident pre remittance could be
effective subject to S10A TCGA (time abroad)
IHT & Non Domiciliaries
• Non UK situs property not in estate, whilst
non dom
• Become deemed domiciled if UK resident
for 17 of 20 consecutive years for all IHT
purposes (not income tax or CGT)
• Act before then, especially regarding
excluded property settlements
IHT & Non Domiciliaries
• Property in excluded property settlement
not in estate, even if become UK dom
• Make excluded property settlement whilst
non dom, to hold non UK property
• Better still if non resident, to avoid CGT on
transfer
• Transfer gains now in settlement (post FA
2008)
IHT & Non Domiciliaries
• Transfer gains in trust will taint clean capital &
create mixed fund
• Therefore avoid adding to existing excluded
property settlements ~ make a new one!
• Need to be non dom to avoid IHT entry charges on
non UK property
• UK Unit trusts also excluded in such a settlement
• S720 ITA, S87 TCGA, S624 ITTOIA risks
Strategy for Residences
Hold via Offshore Company
• Co UK resident via control?
• PPR lost on sale, S13 TCGA gain
attribution, no remittance basis as UK situs
• Benefit in kind?
• Remittance basis is available on share sale
• Not the best idea!
Strategy for Residences
Hold via Offshore Company Held in Trust
• Co UK resident via control less likely in offshore
trust?
• PPR lost on sale, S13 TCGA gain attribution to
trustees, so deferred for settlor
• Benefit in kind?
• Occupancy is a deemed (remitted) capital payment
matched with any actual capital gain in trust ~
ensure house is only asset in structure
• CGT deferral hard, but not impossible
Strategy for Residences
Hold via Offshore Trust
• PPR election possible
• Gifts with reservation legislation mean
probably still in estate, or pre-owned asset
charges apply
Strategy for Residences
Hold via Retained Interest Settlement
• Barnes Roffe product
• Removes from estate in 6 months
• Works for UK & non UK domiciliaries
Strategy for Debt
Speciality Debt
• Situs where deed is physically located
• An obligation under seal securing a debt
• Need a jurisdiction that recognises deeds
Leaving UK
• ESC A11 allows split year treatment for income
tax
• No split year for CGT. All gains in year of
departure are taxed (subject to RB)
• Gains while non resident not taxed on return if
S10A TCGA complied with (not taxed if UK
assets)
• Sale of UK business still taxed while non resident
• Sale of shares not taxed, so pre-incorporate
Leaving UK
• Gains on assets held over (S260, S165 TCGA)
crystallise
• …but not if have held for six years, or if going
abroad to work and return within three years
without having sold the asset
• Gains on assets held over under EIS / VCT
crystallise
• …but not if have held for three years, or if going
abroad to work and return within three years
without having sold the asset
Trust Migration
• All assets deemed sold / reacquired at open
market value
• Triggers charge on trustees
Company Migration
• All assets deemed sold / reacquired at open
market value
• Triggers charge on company
• A migrating 75% subsidiary (S) of UK
holding company (H) has gains passed to H
• Crystallise only if H migrates, S ceases to
be a subsidiary or if S sells assets within 6
years
Offshore Companies
Directly held
• S720 ITA risk (transfer of assets abroad)
• Motive defence ~ proper trade
• S13 TCGA attribution of gains (RB if non
UK situs)
Offshore Companies
Held via UK Holding Company
• S720 ITA risk largely avoided
• S13 TCGA attribution of gains to H Co.
• Controlled Foreign Company legislation applies if
o/s tax < 75% UK tax
• Immigration of S & payment of tax free dividend
to H a possibility
• H’s tax free money could go to an EBT
• For details of that and more, see you at the next
seminar!
Barnes Roffe LLP
Contact details
Barnes Roffe LLP
Offices at Central London, East London, Uxbridge and Dartford
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Keith Mason - Tax Partner - direct line 01322 620216
[email protected]
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Mario Cientanni – Corporate Finance Partner - direct line 01322 620201
[email protected]
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Duncan Stannett – General Partner – direct line 01322 620202
[email protected]