1. THE GOOD, THE BAD AND THE UGLY UK TAX UPDATE 2013 OLIVER COURT DD: +44 (0)20 7849 2783 oliver.court@macfarlanes.com STEP BERMUDA 2013 – 12TH ANNUAL CONFERENCE 28 FEBRUARY 2013

2. KEY UK TAX CHANGES FOR 2013 Statutory residence test Extension of inheritance tax spouse exemption High value residential property taxation Treatment of specialty debts Changes to UK anti-avoidance rules

3. STATUTORY RESIDENCE TEST Certainty With effect from 6 April 2013 Three tests: –Automatic overseas test –Automatic UK test –Sufficient ties test

4. AUTOMATIC OVERSEAS TEST Full time work overseas test –fewer than 91 days in the UK –fewer than 31 days working in the UK Day count test for arrivers –fewer than 46 days Day count test for leavers –fewer than 16 days

5. AUTOMATIC UK TEST Day count test –at least 183 days in the UK Full time work in the UK test –75% of working days spent in the UK UK home test – TRAP –only home in the UK, or minimal presence in non-UK homes

6. SUFFICIENT TIES TEST – CONNECTING FACTORS Accommodation tie –“place to live” in the UK available for at least 91 consecutive days Family tie –UK resident spouse or minor children Work tie –at least 40 days working in the UK (i.e. employment or trade) 90 day tie –more than 90 days in the UK in either of the last two tax years Country tie – relevant for leavers only –more time in the UK than in any other country

7. SUFFICIENT TIES TEST – DAY COUNT THRESHOLDS OutcomeDays spent in UK – not resident in the three previous tax years Days spent in UK – resident in one or more of the three previous tax years Always non-residentFewer than 46 daysFewer than 16 days Resident if 4 factors or more46-90 days16-45 days Resident if 3 factors or more91-120 days46-90 days Resident if 2 factors or more121-182 days91-120 days Resident if 1 factor or more 121-182 days Always resident183 days or more

8. OTHER POSITIVE DEVELOPMENTS IN 2013 Split year treatment Inheritance tax – extension of spouse exemption

9. HIGH VALUE RESIDENTIAL PROPERTY Residential properties worth more than £2 million Corporate entities: company, partnership with corporate member or CIS Three elements –Stamp Duty Land Tax (“SDLT”) - 15% from 21 March 2012 –Annual Residential Property Tax charge from 1 April 2013 –Capital gains tax at 28% on gains arising from 6 April 2013 Good news announced in December 2012 –Direct trust ownership - not affected by new rules –Exemptions for commercial use of residential property

10. ANNUAL RESIDENTIAL PROPERTY TAX (“ARPT”) From 1 April 2013 Most problematic aspect of changes Property value (£)Annual Charge – 2013/14 (£) Band 1: 2m - 5m15,000 Band 2: 5m - 10m35,000 Band 3: 10m - 20m70,000 Band 4: 20m+140,000

11. ARPT (2) Tax return for ARPT -30 April each year (for 2013 - return due by 1 Oct and tax paid by 31 Oct) -Name of beneficial owner Valuation -First valuation date is 1 April 2012 - re-valued every five years -Professional valuation -No deduction for borrowing (contrast rules for inheritance tax) Pro rata liability for property bought/sold part-way through tax year

12. EXTENSION OF CAPITAL GAINS TAX (“CGT”) Current position -Non-residents (including non-resident companies): no CGT Gains from 6 April 2013 at 28% No ARPT: no CGT Sale of shares in company by non-resident: no CGT Existing anti-avoidance rules where UK resident beneficiaries

13. IMPACT: NEW PURCHASES Personal ownership -Nominee company to protect confidentiality -SDLT at 7% not 15% -Avoids ARPT and extended CGT rules Inheritance tax -Spouse exemption -Borrowing -Life assurance Will

14. IMPACT: NEW PURCHASES (2) Direct ownership by non-UK trust -Not subject to new rules -Exposure to UK inheritance tax: on death of settlor and every 10 years -May be attractive for UK RNDs where more than one property -Maximise IHT shelter through borrowing? -Not an option for UK doms (due to IHT entry charge) Non-UK partnership?

15. IMPACT: EXISTING STRUCTURES Don’t panic Timing: before and after 1 April 2013 2012 valuation Restructure?

16. IMPACT: EXISTING STRUCTURES (2) Restructuring for non-UK residents Restructuring for UK residents Beware existing borrowing Inheritance tax exposure/mitigation

17. SPECIALTY DEBTS HMRC announcement on 23 January 2013 Why does it matter? -Inheritance tax -Remittances Use of non-UK company

18. CHANGES TO ANTI-AVOIDANCE RULES Temporary non-residence -Claw back Offshore anti-avoidance rules -Capital gains tax: section 13 TCGA 1992 -Income tax: transfer of assets abroad General Anti-Abuse Rule (“GAAR”)

19. Macfarlanes LLP 20 Cursitor Street London EC4A 1LT T +44 (0)20 7831 9222 F +44 (0)20 7831 9607 DX 138 Chancery Lane www.macfarlanes.com This presentation is given on behalf of Macfarlanes LLP. Macfarlanes LLP is not authorised under the Financial Services and Markets Act 2000, but it is able in certain circumstances to offer a limited range of investment services to clients because it is authorised and regulated by the Solicitors Regulation Authority. It can provide these investment services if they are an incidental part of the professional services it has been engaged to provide. © Macfarlanes LLP 2013 THE GOOD, THE BAD AND THE UGLY UK TAX UPDATE 2013 OLIVER COURT DD: +44 (0)20 7849 2783 oliver.court@macfarlanes.com