Domicile & Trusts in the era of Finance Bill 2017 Oliver Marre

Transcription

1 15 Old Square, Lincoln s Inn London WC2A 3UE taxchambers@15oldsquare.co.uk Domicile & Trusts in the era of Finance Bill 2017 Oliver Marre

2 Inheritance tax Non-UK doms pay no IHT on foreign situate assets. Excluded property trusts (settled by non-doms). Income tax & capital gains tax Non-UK doms have access to remittance basis. 2

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5 Domicile of origin: father s domicile at time of birth (or if parents unmarried, mother s domicile at time of birth). 5

6 Domicile of choice: residence & intention to remain indefinitely. The residence should be the main residence of the individual: Plummer 60 TC 452. Intention must be firm and settled Re Clore (No.2) [1984] STC

7 Indefinitely. until the end of his days unless something happens to make him change his mind. Bullock 51 TC

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10 Statements made by a person as to his intention are useful evidence but by are no means conclusive (Wahl v. AG (1930) 2417 LT 382). Especially consider contingency for return. Acquisition of passport. Cf. Bheekhun v. Williams [1992] 2 FLR 229 (Mauritian; retained UK passport post-independence) & F v. IRC [2000] STC (SCD) 1 (Iranian exile). Motiviation is key. Links to the jurisdictions Charities Family Property Burrial Bank accounts Extended trips 10

11 Cyganik v Agulian [2006] EWCA Civ 129 Connecting factors with Cyprus Connecting factors with the UK Born Parents & grandparents Arrived after broken engagement Worked 3 landholdings 3 landholdings Sent money Regular contact with family Majority of friends in UK were expat Cypriots Extended stays (several months) Engaged to English resident Polish expat 11

12 Mummery LJ held that there was no clear evidence that the deceased had ever intended to reside permanently or indefinitely in England. On that basis, the deceased had not acquired a domicile of choice in England Lewison J and Lord Justice Longmore both agreed with Mummery LJ. 12

13 Losing a domicile of choice Ceasing to reside/ceasing to intend to reside indefinitely. Then: (1) domicile of origin revives or (2) new domicile of choice is acquired. 13

14 Politics British people should pay British taxes in Britain and now they will. 14

15 New deemed domicile rules: Formerly domiciled residents Long term residents 15

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17 CGT/IT deemed domicile CGT/IT deemed domicile Comment Returning domiciliary New Condition A 15-year rule New Condition B 17

18 If as formerly domiciled resident: review trusts made by individual (including charitable trusts). If deemed domiciled under 15 year rule: consider creating pre-domicile trust: see in particular section 86 transitional provisions below, relevant especially pre-april Review interest-free loans to trusts or underlying companies. Consider arranging foreign income and gains to arise while remittance basis still applicable. Pre-April 2017, consider with particular care rebasing/cleansing reliefs, below. 18

19 IHTA 1984 section 48 (3) Where property comprised in a settlement is situated outside the United Kingdom (a) the property is excluded property unless the settlor was domiciled in the United Kingdom at the time the settlement was made 19

20 Foreign situate land Shares in most foreign companies Debts & other rights situate outside the UK. The question can be more complex. 20

21 Shares in foreign companies Nb. Residential UK property exclusion (AH has discussed this). UK commercial property interests unaffected. 21

22 IHTA 1984 section 48 continues: (3B) Property is not excluded property by virtue of subsection (3) above if (a) a person is, or has been, beneficially entitled to an interest in possession in the property at any time, (b) the person is, or was, at that time an individual domiciled in the United Kingdom, and (c) the entitlement arose directly or indirectly as a result of a disposition made on or after 5th December 2005 for a consideration in money or money's worth. 22

23 Income / capital arising and not remitted will usually be sheltered from UK income tax or CGT assuming remittance basis applies. 23

24 This section attributes to UK resident and domiciled settlors gains made by offshore trusts. In conjunction with the new deeming provisions for domicile, this has wide reaching implications. 24

25 (e) no property or income is provided directly or indirectly for the purposes of the settlement by the settlor, or the trustees of any other settlement of which the settlor is a beneficiary or settlor, at a time in the period (i) beginning with the later of the creation of the settlement and the start of 6 April 2017, and (ii) ending with the end of the particular tax year, when the settlor is regarded for the purposes of section 86(1)(c) as domiciled in the United Kingdom as a result of section 835BA of ITA 2007 having effect because of condition B in that section being met. 25

26 To avoid tainting: Who is the settlor? What counts as the provision of property? 26

27 Beware non-commercial loans 27

28 (1) arms length additions. (2) pre-existing liabilities. (3) people paying trust tax when it cannot be paid from trust income. 28

29 This taxes UK resident beneficiaries on trust gains. Therefore, if a beneficiary is within the charge to tax and cannot claim the remittance basis (e.g. because newly deemed domiciled in the UK), there will be a charge. 29

30 Channelling through offshore beneficiaries increasingly difficult. Herman [2007] STC (SCD) 571 Bowring [2015] All ER (D) year rule Anti avoidance provision for 3 year rule Disregard for stockpiling for distributions to non resident beneficiaries for amounts still unmatched on 6 April

31 Income tax charges on Settlors (section 624 ff. ITTOIA 2005) Transferors (section 714 ff. ITA 2007) Those with power to enjoy (section 730 ff. ITA 2007) Subject to remittance base charge if not remitted for non UK domiciliaries. Subject to some protections for untainted trusts for 15/20 year domiciliaries. Similar to s. 86 protections. ITA charges subject to motive defence & possible EU law defences, depending on jurisdictional issues. 31

32 15 Old Square, Lincoln s Inn London WC2A 3UE taxchambers@15oldsquare.co.uk Domicile & Trusts in the era of Finance Bill 2017 Oliver Marre