UK Tax Planning post-GAAR: what’s left? Harley Richards Tax Manager 13 October 2014

1 © 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 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.

2 © 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”?

3 © 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 Non-Dom Trusts Remittance planning Offshore Insurance Bonds Inheritance Tax structuring Incorporation Family Limited Partnerships/ Companies Annual Tax on Enveloped Dwellings (“ATED”) Planning Pensions Life after GAAR

4 © 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) 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

5 © 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 settles £ Uncle/ Auntie (UK res/ dom) IOM Trust UK res/ dom Bens (excluding settlor) income/ gains roll-up tax-free benefits taxed only when received

6 © 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/ non- dom) IOM Trust UK res Bens (including Mr X) offshore income and all gains roll-up tax-free UK income taxable as it arises other profits taxed on remittance

7 © 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) Cash £1m (clean capital) Assets Transfer of all income and gain producing assets Transfer of stockpiled gains Section 90 TCGA 1992 Settlor UK res/ non-dom IOM Discretionary Trust 2 IOM Discretionary Trust 1

8 © 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 1 st time All historic income/ gains = clean capital Ensure future income always kept separate Remit from balance

9 © 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

10 © 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.

11 © 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 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

12 © 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

13 © 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 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

14 © 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

15 © 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

16 © 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?

Presenter’s contact details Harley Richards Tax Manager +44 (0) © 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.