Welcome UK Tax Update Jason Laity 7 December, 2016
Agenda 8:30-8:35 Introduction Jason Laity 8:35-8:55 UK residential property Jason Laity 8:55-9:25 Long term UK residents, including rebasing, mixed funds, trust protections Greg Limb & Anna Warren 9:25-9:45 HMRC s approach to offshore Derek Scott 9:45-10:00 Questions 2
Residential Property Jason Laity December 7, 2016
The property landscape Significant number of complex changes in a short space of time 17 Jul 2013 IHT debt restrictions 4 Dec 2014 New SDLT rates/bands Apr 2016 Wear and tear allowance one Apr 2017 Interest relief restriction for landlords 21 Mar 2012 15% SDLT enveloped rate > 2m 6 Apr 2014 PPR Changes 6 Apr 2015 NRCGT & PPR changes 2012 2013 2014 2015 2016 2017 1 Apr 2016 Apr 2013 ATED threshold > 2m 20 Mar 2014 15% SDLT envelope rate > 500k 4 Aug 2014 Changes to debt remittance rules SDLT surcharge ATED threshold > 500k 1 Apr 2015 ATED threshold > 1m Apr 2017 IHT if UK property held via companies or trust 2016 KPMG LLP, Channel a UK Islands limited Limited, liability a partnership Jersey company and a member and a member firm of the firm KPMG of the KPMG network network of independent of independent member member firms affiliated firms affiliated with KPMG with KPMG International International Cooperative Cooperative ( KPMG ( KPMG International ), International ), a Swiss a entity. Swiss All entity. rights All reserved. rights reserved. 4
Changes already in place
ATED, ATED CGT, SDLT for UK residential property ATED (2017/18) Value Charge 500k 1m 3,500 1m - 2m 7,050 2m - 5m 23,550 5m - 10m 54,950 10m 20m 110,100 20m or more 220,350 ATED CGT on post April 2013 gains Owner Rate Company 28% SDLT Owner Rate Company 15% 2016 KPMG LLP, Channel a UK Islands limited Limited, liability a partnership Jersey company and a member and a member firm of the firm KPMG of the KPMG network network of independent of independent member member firms affiliated firms affiliated with KPMG with KPMG International International Cooperative Cooperative ( KPMG ( KPMG International ), International ), a Swiss a entity. Swiss All entity. rights All reserved. rights reserved. 6
NR CGT, SDLT for UK residential property Additional property SDLT rates NR CGT on post April 2015 gains Band Previous residential SDLT rates New additional property SDLT rates 0* 125k 0% 3% Owner Rate Individual 18%/28% Trustee 28% Company 20% 125k 250k 2% 5% 250k - 925k 5% 8% 925k - 1.5m 10% 13% 1.5m + 12% 15% 2016 KPMG LLP, Channel a UK Islands limited Limited, liability a partnership Jersey company and a member and a member firm of the firm KPMG of the KPMG network network of independent of independent member member firms affiliated firms affiliated with KPMG with KPMG International International Cooperative Cooperative ( KPMG ( KPMG International ), International ), a Swiss a entity. Swiss All entity. rights All reserved. rights reserved. 7
Changes from April 2017
Inheritance tax on UK residential properties Interest in close company, partnership or loan not excluded property if attributable to UK residential property Value of non-uk company in trust attributable to UK residential property relevant property and liable to UK IHT on 10 year charge or death of settlor (if GROB) Value of non-uk company attributable to UK residential property relevant property and liable to UK IHT on death of shareholder or gift of shares with 7 years of death Deduction for debt in close company, but note that loan itself subject to IHT Odd provision stops sale proceeds of non-uk company, partnership or loan attributable to UK residential property being excluded property for further 2 years NR CGT definition of UK residential property i.e. no minimum value and no letting relief TAAR disregards arrangements main purpose of which to avoid or minimise IHT on UK residential property Proposal to impose liability on any person who has legal ownership of property, including non-residents, has been dropped No mention of proposal to prevent sale of property until IHT paid 2016 KPMG LLP, Channel a UK Islands limited Limited, liability a partnership Jersey company and a member and a member firm of the firm KPMG of the KPMG network network of independent of independent member member firms affiliated firms affiliated with KPMG with KPMG International International Cooperative Cooperative ( KPMG ( KPMG International ), International ), a Swiss a entity. Swiss All entity. rights All reserved. rights reserved. 9
Existing structures Restructure? Make gifts pre-april 2017 whilst excluded property to avoid gift being considered a PET Loans De-envelope? No de-enveloping relief so SDLT / ATED CGT/ s87 & s13 TCGA 1992 Case by case e.g. could de-envelope just to trust level if settlor dead 2016 KPMG LLP, Channel a UK Islands limited Limited, liability a partnership Jersey company and a member and a member firm of the firm KPMG of the KPMG network network of independent of independent member member firms affiliated firms affiliated with KPMG with KPMG International International Cooperative Cooperative ( KPMG ( KPMG International ), International ), a Swiss a entity. Swiss All entity. rights All reserved. rights reserved. 10
New structures New cases In many cases, personal ownership with insurance more straightforward Non-resident company still potentially useful for UK rental (lower income tax, lower NR CGT and no interest relief restriction) Tax Individual Company Trust Trust & Company Income tax on rents Up to 45% 20% 45% 20% NR CGT 18% / 28% 20% 28% 20% ATED if no letting relief No Yes No Yes ATED CGT if no letting relief No Yes No Yes Inheritance tax 40% 40% 40% + 6% 40% + 6% SDLT on purchase Up to 15% 15% Up to 15% 15% 2016 KPMG LLP, Channel a UK Islands limited Limited, liability a partnership Jersey company and a member and a member firm of the firm KPMG of the KPMG network network of independent of independent member member firms affiliated firms affiliated with KPMG with KPMG International International Cooperative Cooperative ( KPMG ( KPMG International ), International ), a Swiss a entity. Swiss All entity. rights All reserved. rights reserved. 11
Long term UK residents Greg Limb and Anna Warren December 7, 2016
What are the changes? Deemed UK domicile for tax purposes Non-UK trust protections Mixed funds cleansing Rebasing 13
Deemed domicile
Changes to deemed domicile tax rules Long term UK resident non-doms Currently deemed UK domiciled for IHT only when resident in UK for 17 out of 20 tax years, including current year From April 2017, deemed UK domiciled for all tax purposes once resident in UK for 15 of the past 20 tax years Protections for offshore trusts created before becoming deemed domiciled Born in UK with UK domicile of origin But if born in UK with UK domicile of origin, always UK domiciled if UK resident One year grace period for IHT No protections for offshore trusts created before becoming deemed domiciled whilst settlor UK resident 15
Non-UK trusts
Existing position When not deemed domiciled, added property excluded property for IHT If deemed domiciled, added property not excluded property for IHT, therefore entry charge IN Settled by non-dd settlor, now DD (i.e. for IHT only) Non UK trust OUT IHT no charge on exit if excluded property, but thereafter within estate if recipient DD IT distributions and benefits taxable on recipient, but with benefit of remittance basis, if paid from income (settlor) or matched with income (beneficiary) IHT Foreign assets in trust, and all assets held by company, remain excluded property and outside scope of IHT unless settlor deemed domiciled or domiciled when added CGT Settlor not taxed on capital gains on arising basis During life of trust IT Transparent for UK income. Settlor not taxed on foreign income on arising basis CGT distributions & benefits taxable on recipient, but with benefit of remittance basis, if matched with gains 17
Draft provisions per Finance Bill 2017 Tainting trust protections lost if property added to protected trust when deemed domiciled (exceptions for arm s length transactions, pre 5/4/2017 liabilities & expense deficits) New trusts will not benefit from protections IHT Foreign assets in trust and all assets in company remain excluded property and outside scope of IHT (except UK residential property), unless settlor deemed domiciled or domiciled when added CGT / IT Settlor not taxable on capital gains or on foreign income on arising basis, unless protections lost due to addition. Transparent for UK income IN Settled by non-dd settlor, now DD (i.e. for IHT, CGT & IT) Non UK trust During life of trust OUT DANGER! SUBJECT TO CHANGE & INCOME TAX RULES NOT YET PUBLISHED CGT / IT distributions / benefits* to UK resident settlor matched with income / gains and then taxable on settlor, with no remittance basis if deemed domiciled CGT / IT distributions / benefits* to close family (spouse & minor children) matched with income / gains and then taxable on UK resident settlor, if not already taxed on recipient, with no remittance basis if settlor deemed domiciled *Benefits valued at cost x ORI less amount paid. Interest free & interest bearing loans at ORI less amount paid CGT no cleansing of stockpiled gains to NR beneficiary after 5/4/2017 (regardless of settlor s domicile) Recycling - capital payment to non-resident / non-close family member taxable on UK beneficiary if given / lent to them within 3 years 18
Cleansing Mixed Funds
Mixed Funds Two year window to turn back the clock and separate cash mixed funds into component parts. Only applies to money assets must be liquidated Applies to all resident non-doms not just those becoming deemed domiciled on 6 April 2017 Not available to returning non-doms Must have claimed remittance basis for tax year before 2017/18. Must be able to identify the composition of the mixed fund. Huge opportunity to review accounts for all Non-dom clients. 20
Rebasing
Rebasing - Who does it apply to? Individuals who: Deemed dom on 6 April 2017 Foreign assets at a gain Paid the RBC? 22
Rebasing - Who won t qualify? Individuals: - Not UK deemed dom at 6 April 2017 - Born in the UK with a UK dom of origin - Never paid the RBC - Automatically qualify for the remittance basis Trustees Partnerships Companies 23
What does it apply to? What s in Non-UK situs assets giving rise to capital gains, e.g.: - Land - Shares and securities - Share for share exchanges if both the original and new shares were non-uk situs during period 16 March 2016 to 5 April 2017 What s out Assets already in the UK Assets situated in the UK at any time from 16 March 2016 to 5 April 2017. Trust assets Partnership assets Income based assets - Bonds - Offshore funds - Deeply discounted securities Wasting assets 24
How will it work? 25
HMRC s approach to offshore Derek Scott Head of Tax Investigations
Key messages Step change in approach by HMRC Tax Amnesties are no more. Final chance to take corrective action is now Thereafter significant new sanctions- civil and criminal Impacts taxpayers and enablers Underpinned by AEOI/CRS 27
What tax authorities want, in a word, is INFORMATION 2016 KPMG LLP, a UK limited liability partnership 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. 28
Requirement to Correct (RTC) Will apply to all offshore tax non-compliance issues that exist up to and including 5 April 2017 Wider than tax evasion - all non compliance Taxpayers will have until 30 September 2018 to make any correction required Includes offshore trustees IT/CGT/IHT HMRC expect people to review their affairs and take advice if necessary 29
Requirement to Correct (RTC) Covers any taxpayers that have a UK tax liability that relates wholly or in part to an offshore issue, meaning: - Income arising from a source in a territory outside the UK - Assets situated or held in a territory outside the UK - Activities carried on wholly or mainly in a territory outside the UK, or - Anything having effect as if it were income, assets or activities of a kind described above Or, where funds connected to a tax loss are received in a territory outside the UK or are transferred to a territory outside the UK. 30
Requirement to Correct (RTC) Significant new set of sanctions for Failure to Correct (FTC): - Penalties of 100% to 200% of the tax not corrected, and - Penalties up to 10% of the value of the relevant asset in the most serious cases and involved over 25,000 tax in any tax year, and - A 50% additional penalty for seeking to avoid RTC via asset moves, and - Naming and shaming in the most serious cases and where over 25,000 in total Only defence for FTC is someone had a reasonable excuse not to correct 100-200%? penalties are reduced to reflect co-operation and whether prompted/unprompted 31
Example Requirement to Correct Mr X has undeclared income from an overseas investment portfolio with value of 7 million that has not been reported on his tax return for the last six years. This has equated to tax owing of approximately 100,000 per annum over 6 years. Current Regime Tax due 600k Provided that the error was careless and was an unprompted voluntarily disclosed, no penalties will be due Failure to Correct Regime Mr X will still owe the 600,000 of tax Mr X will also have additional penalties of 100% (min) of tax due 600,000 Additional penalties of 10% of the underlying asset? 700,000 Naming and shaming? 32
Worldwide Disclosure Facility (WDF) Opened 5 September 2016 Disclose UK tax liabilities that relates wholly or partly to an offshore issue No immunity from prosecution No beneficial financial terms- but lower penalties/sanctions compared to those who are later discovered Two stage process (1) Notification, (2) Complete disclosure & pay tax, interest and penalties within 90 days Complex matters?- procedure to engage with HMRC to discuss Need to consider alternative disclosure options- eg Contractual Disclosure Facility (COP 9) 33
Autumn statement 2016 Tackling offshore tax evasion: a requirement to notify HMRC of offshore structures Consultation on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists. Consultation period runs to 27 February 2017 34
Broader transparency issues Circa 50 countries to exchange details of beneficial ownership of trusts and companies Multi agency task force Panama papers Corporate Criminal Charge - Failure to prevent the criminal facilitation of tax evasion (to be introduced September 2017) 35
Client action & summing up - RTC Income and assets all declared- no further action required Income and/or assets knowingly undeclared take advice to disclose now Client thinks everything is ok is it? RTC is a step change and consequences if no correction made when needed are significant Unless client has absolute certainty tax advice to gain reassurance is strongly recommended RTC extends to non residents (e.g. overseas trustees) with UK tax reporting obligations 36
Jason Laity Chairman, KPMG Channel Islands Limited Tel: +441534 632549 jlaity@kpmg.com Greg Limb Partner, KPMG London Tel: +4420 76945401 greg.limb@kpmg.co.uk Derek Scott Partner, KPMG London Tel: +4420 73112618 Derek.H.Scott@KPMG.co.uk Anna Warren Manager, KPMG London Tel: +4420 73114231 annawarren@kpmg.co.uk 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. 2016 KPMG Channel Islands Limited, a Jersey 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 and logo are registered trademarks or trademarks of KPMG International.