1. A New Era for Guernsey and Non-UK Domiciliaries? 17 September 2015

2. Agenda  ‘Deemed domicile’ from April 2017  IHT and UK residential property from April 2017  Residential property investment and interest relief  Proposed strict liability criminal offence  Correcting a mistake via the courts

3. Proposed ‘Deemed Domicile’ Changes

4. The Proposed Changes  Effective from 6 April 2017 –Finance Bill 2016 –Consultation document due  Two changes –Foreign Domicile of Origin 15 of last 20 years From year 16, deemed UK domiciled for Income Tax, Capital Gains Tax and Inheritance Tax purposes –UK Domicile of Origin If foreign Domicile of Choice, deemed UK domiciled if return to UK.

5. Foreign Domicile of Origin  From year 16 –Remittance Basis no longer available –IHT on personal worldwide assets  Potential Personal Planning –Realise non-UK asset gains pre 6 April 2017 –Do not realise losses –Bring forward foreign income that is within your control (e.g. foreign company dividends)  Trusts……….

6. Carve out for (offshore) trusts…….?  How does it currently work? –Income Tax ‘Look through’ Settlement provisions Transfer of Assets Abroad provisions –Capital Gains Tax ‘Pool’ until become UK domiciled, then ‘look through’ –Inheritance Tax ‘Excluded property’ even once become deemed UK domiciled

7.  Technical Briefing on 8 July 2015 –“Non doms who have set up an offshore trust before they become deemed domiciled [in the UK] under the 15 year rule will not be taxed on trust income and gains that are retained in the trust and such excluded property trusts will have the same IHT treatment as at present (subject to the announcement made at Budget 2015 on UK residential property held through offshore companies and similar vehicles). However, such long term residents will, from April 2017 be taxed on any benefits, capital or income received from any trusts on a worldwide basis. The government will consult on the necessary changes to the transfer of assets regime and Capital Gains Tax trust provisions. The government recognises that this is a significant change to the current rules and that changes to trust taxation are complex and will need to be considered carefully."  Technical Briefing on 8 July 2015 –“Non doms who have set up an offshore trust before they become deemed domiciled [in the UK] under the 15 year rule will not be taxed on trust income and gains that are retained in the trust and such excluded property trusts will have the same IHT treatment as at present (subject to the announcement made at Budget 2015 on UK residential property held through offshore companies and similar vehicles). However, such long term residents will, from April 2017 be taxed on any benefits, capital or income received from any trusts on a worldwide basis. The government will consult on the necessary changes to the transfer of assets regime and Capital Gains Tax trust provisions. The government recognises that this is a significant change to the current rules and that changes to trust taxation are complex and will need to be considered carefully." Carve out for offshore trusts…….?

8. Carve out for (offshore) trusts…….?  How may it work? –Income Tax No ‘look through’? Settlement provisions? Transfer of Assets Abroad provisions? –Capital Gains Tax Continue with s.87? –Inheritance Tax Proposed no change to current regime

9. Carve out for (offshore) trusts…….?  Potential Opportunity –Offshore trust/company structures significantly more attractive –Set up before becoming UK ‘deemed domiciled’ –Fund primarily by way of loan  Supplementary Charge on Capital Gains?  Benefits –Funds grow tax efficiently within the structure –Avoid Remittance Basis charge –Avoid tainting sale proceeds with Capital Gains –Continued IHT protection –Flexible access to funds Trust Underlying Company

10. Inheritance Tax on UK Residential Property

11. General Comments  Effective from April 2017 –Consultation due soon –Introduced in Finance Bill 2017  Ignorance of the law is no excuse against penalties –Lucas Properties Limited –Late ATED return - £1,300 –Penalties become tax geared  Fair share……?

12. Intention Behind the Changes  UK residential property  Indirectly held by non-UK domiciled individuals or excluded property trusts –“IHT will therefore be imposed on the value of UK residential property owned by the offshore company on the occasion of any chargeable event.”  When charge will bite: –Death of company shareholder –Gift of company shares to trust –10 year charge within trust –Company shares distributed from trust –Death of donor if shares gifted within 7 years –GROB…… What if the property is held by a UK company in turn owned by an offshore company?

13. Potential Planning?  Borrowings will be deducted so can the IHT exposure be restricted? Trust FinCoPropCo

14. Other General Items  Enforcement rules?  DOTAS?  Very interesting development –“The government will consider the costs associated with de-enveloping and any other concerns stakeholders may have during the course of the consultation regarding de-enveloping.”  Very contradictory statements –“HMRC’s research suggests that the most common reason for enveloping properties is IHT planning undertaken by non-doms” – Budget Note July 2015 –“It was made clear that the existing provisions with respect to UK residential properties held within enveloped structures (ATED and ATED-related CGT) would not be abolished as a result of this measure, as the Government saw them as being necessary to prevent SDLT avoidance. This was considered unfortunate by a number of the Representatives since “envelope” structures were used for an IHT shelter not SDLT avoidance, so the changes addressed this issue” - Note of meeting with HMRC on 23 July 2015 published by ICAEW Tax Faculty in August 2015.

15. Property Investment and Interest Relief

16. Investing in UK Residential Property  Government is inconsistent –Hold in company (CGT for Non-Residents at only 20%, BR Income Tax only 20%) –Hold personally (ATED/ATED related CGT and IHT changes)  10% Wear and Tear Allowance (2016)  Interest restriction from 2017/18 (2020/21) –Not apply to companies or commercial property

17. Investing in UK Residential Property  This will change investment returns  Potential carve out for offshore trusts could be the perfect solution –Hold property through company –TOAA to not apply and only taxed on income distributions so effective relief for interest?

18. Investing in UK Residential Property Loan to company for ease of extraction Loan to UK company on arms’ length terms UK company provides 18% CT rates on income and gains…… also IHT protection? Guernsey company for IHT protection and extract via liquidation

19. Strict Liability Criminal Offence for Offshore Evasion

20. Be afraid….. be very afraid!  Second consultation to end in October 2015  Targeted at the most serious cases of offshore tax evasion –HMRC will aim to have safeguards to ensure that taxpayers who make every effort to get their taxes right are not caught  Suggested terms –Min tax threshold £5,000 –Max 51 weeks in prison

21. Reasonable Excuse…..  Almost never available  How can a strict liability criminal offence have a reasonable excuse defence?  The expected benefit to HMRC…..

22. Why Should You Care?  Example –UK resident but foreign domiciled settlor –Trust structure funded by clean capital –Trust sets up underlying company for investments due to ease of administration and ability to invest in UK equities –All income and capital kept segregated correctly  Investment managers are UK based advisers and do the following –Pay their own fees from the foreign source income –Invest in UK equities using the foreign source income

23. What can you do  Ensure this aspect is covered in all new tax advice –But Carve Out from April 2017?  For all current non-UK domiciled settlor/transferors who claim the Remittance Basis: –Check the investment manager’s fees are paid from clean capital; and –Check the investment mandate re the foreign income to ensure that UK stocks cannot be acquired. –Remind yourself what a remittance is and ensure that your procedures can prevent you making one accidentally (trust or company level)

24. Rectifying a Mistake Through the Courts

25.  Interesting change in attitude  Jersey Royal Courts –IFM Corporate Trustees Limited v Helliwell and Mountain  Not an aggressive scheme but mistakes made that required rectification  Court basically declared that it could be persuaded to not exercise judicial discretion to rectify a mistake where the scheme in question was so contrived and artificial that it would be distasteful for the courts to endorse it.

26. About the speaker James Walker +44 (0)207 556 1322 walkerj@buzzacott.co.uk 130 Wood Street, London, EC2V 6DL James heads up the Private Client team at Buzzacott LLP. James spent 10 years working in the tax departments of two well known trust companies in Jersey before returning to London in 2005 where, aside from a short stint in Zurich, he has remained. James’ particular specialisms are the UK tax arena for non-UK domiciliaries and all forms of ‘offshore’ structures.