This principle has been prominent in many of the cases dealing with tax avoidance ever since the landmark WT Ramsay case.The Treasury has embarked on a virtual crusade against unacceptable tax avoidance, with a plethora of new legislation having emerged. Generally speaking, transactions grounded in commercial realities and carried out for a commercial purpose stand a better chance of success than transactions without these attributes. Recent examples of cases include the now infamous Arctic Systems case. Well-publicised attacks such as this, along with the relatively recent legislation aimed at preventing what was considered to be unacceptable tax avoidance by companies through the use of capital redemption policies, have impacted on areas that are central to or closely associated with areas of tax and financial planning. Then there are the high-profile attacks on inheritance tax avoidance through the pre-owned assets tax, which few who are seriously involved in estate planning can be unaware of. Virtually all planning involving lifetime giving of an interest in one’s principal private residence, with continuing occupation by the donor, can expect close scrutiny. Again, there is evidence of a strong substance-over-form approach being adopted in connection with arrangements involving the private residence and trusts. Because of this activity and the continuing flow of official statements reinforcing the hard line, I believe that fear has a real chance of taking hold and this will significantly aid the Government’s anti-avoidance cause. This cause will be aided and abetted by the disclosure regime for many schemes that are being promoted. The scope for legitimate tax avoidance by non-UK domiciliaries is reasonably well known. The fact that only UK-sited assets are potentially subject to IHT and the remittance basis for capital gains and investment income from non- UK-sited assets combine to give this class of taxpayers fantastic opportunities to avoid or defer tax. Many would conclude that if you are a UK-resident, non-UK domiciliary, you would have to be seriously under-advised to be paying much or any tax on your investment income and gains with the blessing of the legislation as it now stands. In the world of more general financial planning, little airtime is given to the fact that certain income of non-UK domiciliaries in respect of duties performed for a non-resident employer can also be taxed under the favourable remittance basis. In a recent article in The Independent, it was reported that the Treasury estimates that there are 60,000 workers with non- UK-domiciled status but others believe the figure could be as high as 250,000. Earlier this year, the Revenue said it had obtained new legal opinion on the use of dual contracts. It is thought that the basis of its position is one that, based on what in its opinion is commercial reality (there’s that concept again), so-called dual contracts should reflect the reality of the overall performance of duties in the UK and abroad. The remittance basis in respect of earnings applies where:
- The employer is non- UK resident.
- The employee is resident and ordinarily resident in the UK but non-UK domiciled and
- The payment is for duties carried out wholly abroad, provided any duties performed in the UK are merely incidental to duties performed outside the UK.