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TAX PLANNING FOR TAX PLANNING FOR FOREIGN DOMICILIARIESFOREIGN DOMICILIARIES

Emma Chamberlain Emma Chamberlain

5 Stone Buildings5 Stone BuildingsLincoln’s Inn Lincoln’s Inn LondonLondonWC2A 3XTWC2A 3XTTel: 0207 242 6201Tel: 0207 242 6201Fax: 0207 831 8102Fax: 0207 831 8102

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Income tax and capital gains taxIncome tax and capital gains tax Deemed domicile for inheritance Deemed domicile for inheritance

tax purposes – 1992/93tax purposes – 1992/93 £30K charge – 2001/2£30K charge – 2001/2

Importance of Residence

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Limited statutory provisions Limited statutory provisions Based on case law Based on case law Relevance of available Relevance of available

accommodation accommodation IR20 IR20 Recent casesRecent cases

Residence

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New rules – section 24 FA 2008 New rules – section 24 FA 2008 midnights in the UK midnights in the UK

183 day test only 183 day test only ““in transit” nights excluded in transit” nights excluded Future statutory residence test? Future statutory residence test?

Residence

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Changes for individualsChanges for individuals

£30K applies from 2008/9£30K applies from 2008/9 Remittances in specie; defining a Remittances in specie; defining a

remittanceremittance Alienation rulesAlienation rules Interest on debt – offshore mortgagesInterest on debt – offshore mortgages Mixed fund rulesMixed fund rules Loss relief for foreign gains Loss relief for foreign gains

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Changes for individualsChanges for individuals

Payments for UK services and goods Payments for UK services and goods made abroadmade abroad

Temporary residence rules Temporary residence rules Offshore trusts and capital gains tax rulesOffshore trusts and capital gains tax rules Transfer of assets Transfer of assets Gains of non-resident companies Gains of non-resident companies Income source ceasing Income source ceasing Transitional rulesTransitional rules

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£30,000 and personal allowances£30,000 and personal allowances

£30K to pay from 2008/9 if more than £30K to pay from 2008/9 if more than £2000 unremitted income/gains£2000 unremitted income/gains

Adults only – “remittance basis user”Adults only – “remittance basis user” You can opt in and out of charge You can opt in and out of charge Loss of personal allowances/exemptionsLoss of personal allowances/exemptions Tax charge on unremitted income and Tax charge on unremitted income and

gains - nominated income/gains gains - nominated income/gains US tax credit? UK tax credit for £30K?US tax credit? UK tax credit for £30K?

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£30,000 and personal allowances£30,000 and personal allowances

Nominate any income Nominate any income Payment dates Payment dates Do not remit nominated income Do not remit nominated income Pay the £30K from offshore account Pay the £30K from offshore account Effect of claim to be a remittance basis Effect of claim to be a remittance basis

useruser Avoiding the need for the remittance basisAvoiding the need for the remittance basis

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Foreign lossesForeign losses

No relief before 6 April 2008No relief before 6 April 2008 Limited loss relief for RBU if election Limited loss relief for RBU if election Election irrevocableElection irrevocable Make in first year of RBUMake in first year of RBU No loss relief when losses realised after No loss relief when losses realised after

gainsgains Order of relief Order of relief Watch UK lossesWatch UK losses

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Foreign lossesForeign losses

No losses to be used against s87 gainsNo losses to be used against s87 gains

Separating gain from capitalSeparating gain from capital

Watch currency gains Watch currency gains

Meaning of remittance

Condition A – money or property brought to or received in or used in the UK by or for the benefit of a relevant person or service provided

Condition B – the property/service is the income or gains or derived from income/gains or used in respect of a relevant debt

Definition of relevant person – individual,spouse, civil partner, cohabitee, minor child/grandchild/trust, company

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Offshore mortgagesOffshore mortgages

Money lent before 12 March 2008Money lent before 12 March 2008 Money lent abroadMoney lent abroad Before 6 April 2008: Before 6 April 2008:

money received in the UK and money received in the UK and residential property acquiredresidential property acquired debt or guarantee secured on propertydebt or guarantee secured on property

no variation in termsno variation in terms RFI onlyRFI only

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Meaning of remittanceMeaning of remittance

Condition C – enjoying the gifted property Condition C – enjoying the gifted property Condition D – reciprocal arrangementsCondition D – reciprocal arrangements Are the rules comprehensive? Pre 6 April Are the rules comprehensive? Pre 6 April

income/gainsincome/gains Transitional rulesTransitional rules Advantage of trusts Advantage of trusts

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Trusts and capital gains Trusts and capital gains taxtax

Section 86 – does not apply if foreign Section 86 – does not apply if foreign domiciled even if no remittance basis domiciled even if no remittance basis claimclaim

Section 87 – charge now appliesSection 87 – charge now applies Remittance basis on capital payment Remittance basis on capital payment

– where gain is made is irrelevant – where gain is made is irrelevant Pre April 2008 capital payments or Pre April 2008 capital payments or

pre April 2008 gains – not taxed pre April 2008 gains – not taxed Rebasing optionsRebasing options

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Trusts and capital gains Trusts and capital gains taxtax

Capital payments matched with gains on Capital payments matched with gains on last in and first out basis – reduces penaltylast in and first out basis – reduces penalty

If matched to pre April 2008 gains – no If matched to pre April 2008 gains – no charge even if not a remittance basis usercharge even if not a remittance basis user

Surplus capital payments pre April 2008 to Surplus capital payments pre April 2008 to be matched pro rata against pre and post be matched pro rata against pre and post April 2008 gains on electionApril 2008 gains on election

Rate of tax Rate of tax