1. BARNES ROFFE LLP Offshore Tax Planning DARTFORD FOOTBALL CLUB 21 MAY 2009

2. 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

3. 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

4. Residence Assessment of Taxes Inheritance Tax a)Domiciled: Worldwide assets b)Not domiciled: UK situs assets only

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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.

11. 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

12. Domicile Three Types Origin Choice Dependency Acquiring a new domicile is difficult ~ loads of case law

13. 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

14. 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

15. 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

16. The Remittance Basis Income / GainsRes, not DomRes not Ord Res Relevant foreign income   Overseas earnings **   Foreign gains   ** Definition not the same. Better if not Ord Res

17. 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

18. 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.

19. Remittances TP Other Was OK. Now not If “Other” is a relevant person

20. Remittances TP Non Rel Person Also a “no-no” Rel Person School fees for Minor grandchild Child of Majority

21. Remittances TP Rel Person Possibly OK Anyone Proceeds Sale Asset

22. 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.

23. 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.

24. 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

25. 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)

26. 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.

27. Remittances RB income/gains Nominated Taxed if remitted £30,000 charge to leave offshore

28. 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”.

29. 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

30. Ordering Rules Remittances matched against o/s income / gains of year of remittance, then previous year, then the year before that etc…

31. 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

32. Ordering Rules ~ Example Taxed on £1m remittance as follows:- a)£200K 09/10 income @ 40% = £80K b)£600K 09/10 gains @ 18% = £108K c)£200K 08/09 income @ 40% = £80K Total of £268 is lower than the expected £180K This applies for ever (2010/11 50% rate!)

33. 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!

34. 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.

35. 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.

36. Mixed Funds Order:- Employment income, not taxed Trade, rent, other, not taxed Gains, not taxed Employment income, taxed Trade, rent, other, taxed Gains, taxed

37. Mixed Funds Application:- On a year by year basis; Previously all years aggregated. This leads to a curious outcome:-

38. 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.

39. Avoid Mixed Funds CapitalIncome Segregation Still OK Hive off income Remit Capital

40. 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.

41. 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.

42. 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 5 th April 1998 when remitted.

43. 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.

44. Foreign Capital Losses Effect of election ~ order of set off All UK & o/s capital losses aggregated 1)Set 1 st vs o/s gains in year, remitted in year 2)Set 2 nd vs o/s gains in year not remitted 3)Set 3 rd vs UK gains arising in year One off chance to elect (on 1 st RB claim), applies for ever. Could be good or disaster!

45. Foreign Capital Losses Effect of election ~ Example 1 UK Gain £30,000o/s unremitted gain £30,000 UK Loss (£30,000) Tax if election made: £5,400 Tax if election not made: £nil

46. Foreign Capital Losses Effect of election ~ Example 2 UK Gain £nilo/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

47. 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)

48. Income Tax & Trusts Trust Only taxed at source If no UK beneficiary Taxed on UK IIP beneficiary Or UK discretionary beneficiary On receipt O/S Income UK Income Taxed @ trust rate If a UK beneficiary The restriction on UK source income can be avoided via use of offshore company

49. Income Tax & Trusts Trust UK income has Become foreign Source income UK Income O/s Co

50. 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.

51. 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

52. 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?

53. 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)

54. 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

55. 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?)

56. 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

57. CGT, Trust + Company Trust S13 TCGA Gains attributed To trust Not settlor S720 ITA risk On income O/s Co Income

58. 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

59. 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)

60. 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

61. 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)

62. 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

63. 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!

64. 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

65. 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

66. Strategy for Residences Hold via Retained Interest Settlement Barnes Roffe product Removes from estate in 6 months Works for UK & non UK domiciliaries

67. Strategy for Debt Speciality Debt Situs where deed is physically located An obligation under seal securing a debt Need a jurisdiction that recognises deeds

68. 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

69. 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

70. Trust Migration All assets deemed sold / reacquired at open market value Triggers charge on trustees

71. 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

72. 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)

73. 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!

74. Barnes Roffe LLP Contact details Barnes Roffe LLP Offices at Central London, East London, Uxbridge and Dartford Keith Mason - Tax Partner - direct line 01322 620216 k.mason@barnesroffe.com Mario Cientanni – Corporate Finance Partner - direct line 01322 620201 m.cientanni@barnesroffe.com Duncan Stannett – General Partner – direct line 01322 620202 d.stannett@barnesroffe.com