Transcript Report template

UK Tax Planning
post-GAAR: what’s
left?
Harley Richards
Tax Manager
13 October 2014
The information contained herein is of a general nature
and is not intended to address the circumstances of
any particular individual or entity. Although we
endeavour to provide accurate and timely information,
there can be no guarantee that such information is
accurate as of the date it is received or that it will
continue to be accurate in the future. No one should
act on such information without appropriate
professional advice after a thorough examination of
the particular situation.
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
The GAAR
•
Effective
•
Abuse not avoidance
•
HMRC guidance
•
Can the course of action taken
“reasonably be seen as
reasonable”?
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Life after GAAR
•
Non-Settlor Interested Trusts
•
Non-Dom Trusts
•
Remittance planning
•
Offshore Insurance Bonds
•
Inheritance Tax structuring
•
Incorporation
•
Family Limited Partnerships/ Companies
•
Annual Tax on Enveloped Dwellings (“ATED”) Planning
•
Pensions
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
What is “Domicile”?
•
Domicile of origin at birth (normally that of your father)
•
Domicile of choice (by reference to conduct)
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It is determined by fact not preference
•
Domicile of choice will reflect permanence and future intent i.e. where
do you want to die?
•
“Deemed domicile” for IHT purposes
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Non-Settlor Interested Trusts
Uncle/ Auntie
(UK res/ dom)
settles £
IOM Trust
benefits taxed only
when received
UK res/ dom
Bens
(excluding
settlor)
income/ gains
roll-up tax-free
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Non-Dom Trusts
settles £
Mr X (UK
res/ nondom)
IOM Trust
• UK income taxable
as it arises
• other profits taxed
on remittance
offshore income and all
gains roll-up tax-free
UK res Bens
(including Mr X)
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Non-Dom Trusts (2)
Settlor
UK res/ non-dom
IOM
Discretionary
Trust 1
Cash £1m (clean
capital)
Transfer of all income and
gain producing assets
Assets
IOM
Discretionary
Trust 2
Assets
Transfer of stockpiled gains
Section 90 TCGA 1992
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Remittance Planning
•
Non-Dom becomes UK resident for 1st time
•
All historic income/ gains = clean capital
•
Ensure future income always kept separate
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Remit from balance
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Offshore Insurance Bonds
•
Income and capital gains roll-up tax-free unless bond = Personal
Portfolio Bond (“PPB”)
•
5% withdrawal facility = tax-free income for 20 years
•
Eg Non-Dom invests £5m, annual growth £200k: tax-saving (say)
£80k without paying the £30k Remittance Basis Charge (“RBC”)
•
Takes £250k income pa tax-free
•
Returns “home” within 20 years – no UK tax when policy matures
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Analysis of PPB
Background
• Insurer not the policyholder that owns the property which determines the benefits
under a life policy.
• If the policyholder has the ability to select the property that determines the policy
benefits, the policyholder retains nearly all the advantages of direct personal
ownership of that property.
• If the property is held in the ‘envelope’ of a life insurance policy, the policyholder
does not have to pay income tax on dividends and interest income arising from the
investments nor capital gains tax on disposals when the investments underlying
the policy are altered.
Legislation
Anti-avoidance measure imposes a yearly charge (15% on “gain” regardless of actual
performance) on life insurance and capital redemption policies, and life annuity
contracts in some circumstances where the property that determines the benefits is
able to be selected by the policyholder.
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Inheritance Tax Structuring
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Co-ownership
-
•
Y wishes to leave £5m house to son/ daughter-in-law
Would cost £2m IHT
Instead gives 80% undivided share in lifetime
IHT reduced to £400k
No Gift with Reservation Of Benefit (“GROB”) provided donees
also “occupy” and no collateral benefits to Y
Reversionary Leases
-
Z (non-resident) grants 999-year lease to son starting in 20 years
Z dies after (say) 16 years
Property almost worthless on death
No GROB provided Z no longer in occupation after 20 years
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Incorporation
•
Personal income tax 45% on income over £150,000 pa
•
Incorporate business and pay corporation tax at 21% (April 2014) then
20% (April 2015)
•
Charge consulting fees to company, or take dividends
•
Non-residence for a 5-year period to avoid UK tax on distribution of
reserves?
•
Or use entrepreneur’s relief on sale/ liquidation – effective tax rate 28%
to 30%
•
NB: beware use of companies in partnership
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Family Limited Partnership/ Companies
•
Mr & Mrs X wish to give away value in estate but retain control
•
Create X Partnership or X Limited and transfer cash to make investments
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Mr & Mrs X act as general partners or directors
•
Give away partnership/ company shares to children/ family members =
potentially exempt transfers
•
Reduction in estate for IHT
•
Retain control of investment strategy and access to cash (fees etc)
•
NB: regulatory aspects of partnership structure
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Annual Tax on Enveloped Dwellings (“ATED”) planning
•
Existing offshore trust establishes offshore company to buy let property
•
X wishes to buy house for personal use/ occupation
•
Lends £3m to Trustees on interest-bearing basis to buy house
•
No ATED
•
No CGT (subject to FA 2014 – Principal Private
Residence?)
•
No IHT until 10-year anniversary charge
•
Loan from X reduces value of property for IHT calculation
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Pensions
Key issues
 Where is the recipient currently resident and domiciled?
 Where will the recipient be resident and domiciled when benefits are
provided?
 Where is the benefits provider resident?
 What (by reference to the relevant legislation) is the nature of benefits
being provided?
 Products with UK IHT advantages (i.e. QROPS and QNUPS) should be
considered as part of wider IHT planning
 Potential to use non-UK approved schemes that would still be regarded as
a “pension” – care needed to avoid EFRBS legislation
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
And finally ….
Any questions?
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© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
Presenter’s contact details
Harley Richards
Tax Manager
+44 (0) 1624 681000
[email protected]
© 2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the
KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
The KPMG name, logo and "cutting through complexity" are registered trademarks or
trademarks of KPMG International Cooperative ("KPMG International").
The information contained herein is of a general nature and is not intended to address the circumstances
of any particular individual or entity. Although we endeavour to provide accurate and timely information,
there can be no guarantee that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.