View more on these topics

Getting the house in order

Over the past two weeks, I have been looking at the consultation on a full statutory definition of residence for UK tax law. Most agree that greater statutory clarity and certainty would be welcome.

Most often, UK financial advisers will advise UK-resident and domiciled clients. However, this will not always be the case and it is essential a financial planner is able to spot when there could be a question mark over the residence status of a client or potential client.

It can have a significant impact on pension, investment and tax-planning strategy. For example, even at the most mundane level, if an investor in an insurance bond is not UK-resident, then, in relation to an offshore bond, non-resident relief will effectively provide for a proportion of any realised gain to be tax-free. This will be determined on a time-apportionment basis, with days of non-tax residence ownership as the numerator and the total days of ownership the denominator.

The reduction in the amount of gain to be taxed is the gain multiplied by the fraction. Also, if the bond is held in trust, any chargeable-event gains would not be assessed on the creator (being non-UK resident) of the trust but on the trustees, provided they are UK-resident. In short, you would need to give the encashment strategy more thought.

Returning to the consultation, it is important to keep in mind that it only covers the issue of tax residence in the UK for individuals and will not cover the residence status of companies.

HM Revenue & Customs is considering the possibility of providing an interactive online tool to enable individuals to self-assess their residence status when the full statutory definition is introduced. A prototype of this tool has been made available through a link and interested parties are invited to make use of this to assess how a statutory test could operate in practice.

Given the number of cases that have been heard in relation to the definition of residence, this consultation will be welcomed by many. Residence and ordinary residence are concepts that are fundamentally important in relation to an individual’s liability to UK income tax and capital gains tax.

As stated above, for the majority of UK-based financial advisers, clients will be clearly UK-resident and ordinarily resident and, for that matter, UK-domiciled, too. However, where there is an element of doubt, such as in relation to the growing number of non-UK nationals working in the UK who may become clients of UK advisers and in relation to emigrating and immigrating individuals, establishing the correct resident/ordinarily resident status, as well as domicile status, is a fundamentally important place to start before embarking on the task of giving advice.

So much for the statutory residence test.

I am now going to turn to the taxation of non-UK domiciliaries.

In the 2011 Budget, the Government announced it would reform the taxation of non-UK domiciled individuals, or non-domiciles, by:

  • increasing the existing £30,000 annual remittance basis charge to £50,000 for non-domiciles who claim the beneficial tax regime, or remittance basis, in a tax year and who have been UK-resident for 12 or more of

the last 14 tax years prior to the year of claim (the £30,000 remittance basis charge, slightly modified, will remain for shorter-term long-term residents);

  • enabling non-domiciles to remit overseas income and capital gains tax-free to the UK for the purpose of commercial investment in UK businesses; and making technical simplifications to some aspects of the current remittance basis rules to remove undue administrative burdens.

The Government states that it recognises non-domiciles can make a valuable contribution to the UK economy and wants to encourage them to invest in the UK, contributing to its priority of generating growth.

These reforms include a significant new incentive for inward investment. The meaning of this is addressed in some detail in the consultation with the definition of a qualifying business incorporating trading businesses and businesses involved in the development or letting of commercial property. The latter is likely to raise some eyebrows but, possibly, in a good way.

Exclusions would include businesses focused on holding and letting residential property and leasing. The consultation makes it clear that the business structure must be a company and not, say, a partnership or LLP. It seems investors could be issued ordinary or preference shares and even make loan capital available. It seems there will be a strong set of anti-avoidance provisions.

Access full CPD, technical updates and business generation ideas through Techlink Professional. Go to www.techlink.co.uk and click the Contact Us link at the top of the screen and then request your free trial from the dropdown menu

Recommended

Mortgage market review has cost FSA £2.7m so far

The FSA has spent more than £2.7m so far on the mortgage market review. A freedom of information request, made by Money Marketing sister title Mortgage Strategy, reveals that since the regulator started working on the MMR two and a half years ago, it has spent £2.55m on staff costs and £213,000 on consultants and […]

Skandia calls for five-year sunset clause

Skandia says the cost-benefit analysis of the legacy commission ban is fundamentally flawed and providers need a sunset clause as they will not be able to change their systems in time for the retail distribution review. The FSA consultation on legacy assets, published last week, provides no specific cost estimates for the ban, saying costs […]

Lloyds announces Horta-Osorio contingency plan

Lloyds Banking Group has announced David Roberts will assume the role of interim chief executive if the return of group chief executive Antonio Horta-Osorio takes longer than expected. On November 2, the bank announced Horta-Osorio would be taking a short leave of absence on medical advice but said he was set to return before the […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com