Foreign Domicile Tax Reform
Policy issues in foreign domiciliary taxation 1.1
Approaches to reform of foreign domiciliary taxation 1.2
History of reform of foreign domicile taxation 1.3
2008 reforms: assessment 1.4
The future 1.5
Domicile
Why does domicile matter? 2.1
The concept of domicile 2.2
Domicile of origin 2.3
Domicile of choice 2.4
Retaining foreign domicile of origin while UK resident 2.5
Acquisition of foreign domicile of choice 2.6
Loss of domicile of choice 2.7
Dual residence and domicile 2.8
Presence in UK because of illness 2.9
Domicile and citizenship 2.10
Refugees, illegal immigrants and temporary visas 2.11
Married women 2.12
Child’s domicile of dependency 2.13
Ireland/Northern Ireland 2.14
HMRC rulings on domicile 2.15
Domicile of company 2.16
Residence of Individuals
Why do residence and ordinary residence matter? 3.1
The concepts of residence and ordinary residence 3.2
Temporary UK purpose and 183-day rules 3.3
Occasional residence abroad rule 3.4
Statutory residence rules and natural meaning of “residence” 3.5
Accommodation in the UK 3.6
CGT statutory residence rules 3.7
Case law on residence 3.8
Case law: ordinary residence 3.9
The relevant period of investigation 3.10
Tax reason for becoming non-resident 3.11
Commentary: Assessment of case law tests 3.12
Dual residence/dual ordinary residence 3.13
Ordinary resident but not resident 3.14
HMRC practice before 2008/09: IR20 3.15
HMRC 6 3.16
The 183-day rule 3.17
Short absences 3.18
Full-time work abroad 3.19
Seafarers 3.20
Year settled abroad 3.21
Year travelling abroad 3.22
Leaving the UK permanently or indefinitely 3.23
Days of arrival and departure 3.24
Relevance of annual average visits 3.25
Method of calculating 91 day average 3.26
Calculating annual average visits: illness & exceptional circumstances 3.27
Coming to the UK 3.28
The three years in the UK practice 3.29
Remaining in the UK for two years 3.30
Visitors 3.31
Longer-term visitors 3.32
Ordinary residence 3.33
Students 3.34
Diplomats, UN/EU officials 3.35
HMRC forms, rulings and certificates 3.36
The future of residence 3.37
Commentary 3.38
Residence of Trustees
Trustee residence – Introduction 4.1
Identifying trustees 4.2
Trustees treated as single and distinct person 4.3
Trustee residence for income tax and CGT 4.4
Trustee residence condition A: all trustees UK resident 4.5
Trustee residence condition B: mixed resident trustees 4.6
Trustee residence condition C 4.7
Accidental residence: a trap 4.8
Sub-funds 4.9
Transfer between settlements 4.10
Permanent establishment residence rule 4.11
When is there a UK PE? 4.12
UK protector and trustee residence 4.13
Trustee residence for IHT 4.14
Commentary: Let’s abolish the relevance of trustee residence 4.15
Treaty Residence
Introduction 5.1
Starting point 5.2
Exception where source tax only 5.3
Tie-breaker tests for individuals 5.4
Permanent home 5.5
Centre of vital interests 5.6
Habitual abode 5.7
Nationality and mutual agreement procedure 5.8
The relevant period of investigation 5.9
Trusts and estates 5.10
Partnerships 5.11
RICs, REITs and REMICs 5.12
Tie-breaker for trusts, companies and PRs 5.13
US treaty 5.14
Year of Arrival and Departure
Arrival and departure – Introduction 6.1
Income tax: statutory split year principle 6.2
Concession A11 6.3
IT computation where ESC A11 applies 6.4
Computation in year of arrival – RFI 6.5
IT Computation in year of departure 6.6
Interest from FOTRA securities 6.7
Income within s.624 ITTOIA 6.8
Income within s.720 and s.731 ITA 6.9
Non-residents income tax relief 6.10
Gains from life policies, etc. 6.11
Accrued income scheme 6.12
Withholding tax on interest 6.13
UK resident individual becoming ordinarily resident during the year 6.14
Income tax on trustees 6.15
CGT statutory split year principle 6.16
Concession D2 6.17
Computation of CGT 6.18
CGT on trusts – year of arrival and departure 6.19
CGT planning – postponing disposals until non-resident 6.20
CGT planning before arrival in the UK 6.21
CGT planning before arrival in the UK 6.22
Commentary 6.23
Year of acquisition of UK domicile 6.24
Exit Taxes
Exit taxes – Introduction 7.1
Clawback of hold-over relief on emigration of individual 7.2
Clawback of EIS relief 7.3
Charge on emigration of trust 7.4
Liability of trustees for exit charge 7.5
Charge on treaty-emigration of trust 7.6
Disclosure of emigration or treaty-emigration of trust 7.7
Emigration of individual trader 7.8
EU restriction on exit taxes 7.9
Temporary Non-Residence
Temporary non-residence - Introduction 8.1
Purpose of the temporary non-residence provisions 8.2
Temporary non-resident conditions 8.3
“Residence requirements” 8.4
Gains and losses accruing in intervening years 8.5
Interaction with remittance basis 8.6
Pre-departure income 8.7
Interaction with double taxation relief 8.8
Post-departure acquisitions 8.9
Section 10A and non-resident trusts/companies 8.10
Time limit for assessment 8.11
Offshore funds 8.12
The Remittance Basis
Remittance basis – Introduction 9.1
HMRC guidance 9.2
“Foreign income and gains” 9.3
History of the remittance basis 9.4
Who qualifies for the remittance basis? 9.5
Remittance basis claimants: s.809B 9.6
Sub-£2k taxpayer: s.809D 9.7
Non-taxpayers: s.809E 9.8
Time of foreign domicile 9.9
Effect of remittance basis claim on personal allowances 9.10
Treaty defence to disallowance of reliefs 9.11
Remittance basis claim charge 9.12
Nature of charge on remitted RFI 9.13
Charge on remitted gains 9.14
Remittance in year after income/gains arise 9.15
Remittance after acquisition of UK domicile 9.16
Remittance in year when taxed on arising basis 9.17
RFI/gains arising when resident, remitted when non-resident 9.18
Remittance after death 9.19
Remittance after source has ceased 9.20
RFI/gains arising when non-resident, remitted when resident 9.21
RFI from Ireland 9.22
Remittance basis for trustees 9.23
Forward tax agreements 9. 24
The Meaning of Remittance
Meaning of remittance – Introduction 10.1
Relevant person – introduction 10.2
Relevant person – close family 10.3
Relevant persons – UK resident family companies 10.4
Relevant persons – non-resident family companies 10.5
Relevant persons – trusts 10.6
Body connected with trust 10.7
Relevant and other persons – compliance 10.8
Relevant person transitional rule for pre-2008/09 income and gains 10.9
Relevant persons: commentary 10.10
Remittance condition A 10.11
Remittance condition B 10.12
Property is the income or the gains 10.13
Derived property 10.14
Partnerships 10.15
Proceeds of divorce settlement 10.16
Debt remittance rules 10.17
Relevant debt 10.18
Debt “relating” to property 10.19
“Use in respect of” a relevant debt 10.20
Becoming/ceasing to be a relevant person: conditions A & B 10.21
Debt becoming/ceasing to be a relevant debt 10.22
Remittance condition C 10.23
Remittance condition D 10.24
Amount remitted 10.25
CGT disposal not for market value 10.26
Purchase of family home 10.27
Payment of school fees 10.28
Remittance of nominated income or gains 10.29
Nominated income: commentary 10.30
Remittance before income or gains arise 10.31
Relief for payment of remittance basis charge 10.32
Foreign services relief 10.33
Exempt property 10.34
Public access rule 10.35
Personal use rule 10.36
Repair rule 10.37
Temporary importation rule 10.38
De minimis rule 10.39
Exempt property clawback charge 10.40
Commencement 10.41
Debit, credit and charge cards 10.42
Property held jointly by spouses 10.43
Avoiding remittances: basic tax planning 10.44
Transitional rules for remittance in specie 10.45
Transitional loan relief 10.46
Gift to charity by remittance basis taxpayer 10.47
Mixed Funds
Mixed funds - Introduction 11.1
Onshore transfer mixed fund rule 11.2
Composition of mixed fund 11.3
Offshore transfer mixed fund rule 11.4
Mixed fund anti-avoidance rule 11.5
Remittance of part of funds transferred 11.6
Mixed funds of third parties 11.7
Transitional rules for pre-2008 mixed fund 11.8
From which fund is remittance made: bank errors 11.9
Remittance when ITA mixed fund regime does not apply 11.10
ITA mixed fund regime: commentary 11.11
Pre-2008 mixed fund regime 11.12
Pre-2008 mixed fund regime: HMRC examples 11.13
Employment Income
Employment income - Introduction 12.1
Terminology 12.2
The charge to tax on employment income 12.3
Amount charged to tax (taxable earnings) 12.4
Taxable earnings 12.5
Earnings “for” a year, “from the employment in a year” and
“received in a year” 12.6
Earnings “for” a tax year 12.7
Pre-commencement and post-cessation earnings 12.8
Resident ordinarily resident and UK domiciled employee 12.9
Resident, ordinarily resident and foreign domiciled employee 12.10
Chargeable overseas earnings 12.11
Foreign employer 12.12
Where are duties performed: incidental duties 12.13
Dual contract arrangements 12.14
Resident but not ordinarily resident employee 12.15
Non-resident employee 12.16
Duties “performed in the UK” 12.17
Earnings “in respect of” duties performed in the UK 12.18
Relocation expenses 12.19
Remittance after year which earnings are “for” 12.20
Remittance after employment ceases 12.21
Remittance of earnings for year that employee is not UK resident 12.22
Remittance when non-resident 12.23
Receipt or remittance after death of employee 12.24
Remittance from earnings for mixed UK/foreign duties 12.25
Earnings from Ireland 12.26
Foreign service exemption for termination payments 12.27
Overseas Crown employment 12.28
Seafarers 12.29
Lower-paid employee exemption 12.30
PAYE 12.31
Tax equilisation 12.32
Accountancy services benefit 12.33
Trading Income
Trading income- Introduction 13.1
Trading income of UK resident 13.2
To whom does trading income arise? 13.3
Trading income of non-resident 13.4
Place where contract made 13.5
Rejection of place of contract test 13.6
Where profits in substance arise 13.7
Trading in UK: preparatory and auxiliary activities 13.8
Buying from UK sellers 13.9
Buying and selling to UK purchasers 13.10
Services 13.11
Construction and engineering works 13.12
Manufacturing 13.13
Use of UK commodity markets 13.14
Leasing and licensing tangible property 13.15
Research division and shop windows 13.16
Where is contract made? 13.17
Trade partly in UK: apportionment 13.18
Property Income
Property income - Introduction 14.1
Property income terminology 14.2
Taxation of income from property business 14.3
Losses of overseas property business 14.4
Losses from 2008/09 14.5
Losses before 2008/09 14.6
Border between trading income and property income 14.7
Savings and Investment Income
Savings and investment income – Introduction 15.1
Why does “capital v. income” matter? 15.2
Why does source of income matter? 15.3
Why does location of source matter? 15.4
Building societies 15.5
Open-ended investment companies and AUTs 15.6
Industrial and provident societies 15.7
Canadian RRSPs, US IRAs, etc 15.8
Alimony and maintenance income 15.9
Casual income 15.10
Interest
Interest - Introduction 16.1
Interest: charge and location of source 16.2
Case law on source of interest 16.3
HMRC view(s) 16.4
Source of interest: conclusion 16.5
Non-resident’s withholding tax 16.6
To whom is interest paid? 16.7
Usual place of abode 16.8
Exceptions to obligation to deduct 16.9
Double tax treaty relief 16.10
Withholding tax on interest from deposit-takers 16.11
Relevant investment 16.12
Exceptions for non-residents 16.13
Duty on deposit-taker 16.14
EU Interest and Savings Directive 16.15
Exempt Interest of Non-residents
Exempt interest - Introduction 17.1
Meaning of “FOTRA Securities” 17.2
Deduction at source 17.3
The FOTRA exemption 17.4
Beneficial ownership 17.5
FORTA securities held on trust 17.6
Interaction of FOTRA exemption and DT relief 17.7
Exempt foreign currency securities 17.8
Securities of international organisations 17.9
Dividends and Distributions
Dividends and distributions - Introduction 18.1
Income from UK resident company 18.2
Income from non-resident company 18.3
Receipt from a non-resident company: income or capital? 18.4
Income distribution from non-resident company: location of source 18.5
Distribution to non-shareholder 18.6
Royalties
Royalties - Introduction 19.1
Classification of royalty income for tax 19.2
Trading royalties 19.3
Non-trading royalties 19.4
Where is the source of non-trading royalties? 19.5
Withholding tax 19.6
DT defence to deduction at tax at source 19.7
Films and sound recordings 19.8
Pension Income
Pension Income – Introduction 20.1
UK pension 20.2
Foreign pension 20.3
Discretionary Trusts: Income Tax
Discretionary trusts – introduction 21.1
Discretionary income payment: charge on beneficiary 21.2
Discretionary trust payment: what is the source? 21.3
Discretionary trust payment: location of source 21.4
Tax credit for beneficiaries who receive discretionary trust payment 21.5
Charge on trustees making discretionary income payment 21.6
Payment from discretionary trust: income or capital? 21.7
Discretionary trusts treated as transparent to allow beneficiaries reliefs 21.8
UK trust - non resident beneficiary: DTT relief 21.9
Discretionary Trusts: beneficial ownership 21.10
IP Trusts: Income Tax
Taxation of life tenant 22.1
Taxation of IP trustees 22.2
DT reliefs 22.3
Baker or Garland trust jurisdiction? 22.4
Settled-Interested Trusts
Settlor-interested trusts – Introduction 23.1
Meaning of “income arising under a settlement” 23.2
Meaning(s) of “settlor-interested” 23.3
Section 624 beneficiary relief 23.4
Section 624 remittance basis 23.5
Remittance basis planning 23.6
Non-resident settlor 23.7
Completion of settlor’s tax return 23.8
Taxation of trustees of settlement within s.624 23.9
Taxation of life tenant (not settlor) of settlor-interested trust 23.10
Settlor indemnity 23.11
Section 624 v. s.720: comparison and priority 23.12
Settlor receives capital sum 23.13
Interaction of s.624 and s.37 TCGA 23.14
Corporate settlor 23.15
Transfer of Assets Abroad: Introduction
TAA – Introduction 24.1
“Relevant transfer” 24.2
A “transfer” of “assets” 24.3
Person abroad 24.4
Income “becomes payable” to person abroad 24.5
Situs of transferred assets 24.6
Transfer for full consideration 24.7
Income accruing to person abroad: causation conditions 24.8
Associated operation: definition 24.9
Significance of associated operations 24.10
Person abroad receives income as indirect consequence of transfer 24.11
Income of person abroad 24.12
Capital receipts deemed to be income 24.13
The amount of income of person abroad 24.14
Transfer of Assets Abroad: Transferors
TAA charges on transferor 25.1
Who is liable? 25.2
Who is the transferor? 25.3
Must the transferor avoid or intend to avoid IT? 25.4
Transferor not ordinarily resident 25.5
Power to enjoy: Section 721 Condition A 25.6
Power to enjoy: causation condition 25.7
Income chargeable: Section 721 Condition B 25.8
Amount of s.720 charge 25.9
Enjoyment condition C – benefits 25.10
Transferor receives capital sum 25.11
The capital receipt conditions 25.12
Section 720 remittance basis 25.13
Interaction of s.87 and s.720 25.14
No indemnity for transferor 25.15
Tax return disclosure 25.16
Transfer of Assets Abroad: Non-Transferors
Non-transferors – Introduction and terminology 26.1
Relevant transfer condition 26.2
Ordinary residence condition 26.3
Benefit 26.4
Who is the recipient of a benefit? 26.5
Benefit causation condition 26.6
Benefit causation condition: two transfers of assets 26.7
Transferor’s s.731 defence 26.8
Benefit liable to IT defence 26.9
Is a benefit within s.731 a capital payment? 26.10
Computation of charge 26.11
Section 733 computation when benefit subject to CGT 26.12
“Relevant income”: definition 26.13
Stock dividends 26.14
Is income of life tenant relevant income? 26.15
Is trust income within s.624 relevant income? 26.16
Is income within s.720 relevant income? 26.17
Income which “can” be used to benefit another person 26.18
When does one ask? – the timing issue 26.19
Relevant income used to pay expenses 26.20
Relevant income of trust distributed as income in year it arises 26.21
Relevant income of trust distributed as income after year it arises 26.22
Relevant income of trust accumulated 26.23
Corporate income distributed to trust 26.24
Distributed income: HMRC view 26.25
Relevant income reinvested: tracing 26.26
Tracing: are distributions out of relevant income? 26.27
Distributing income: tax planning 26.28
Is income of company held by a trust relevant income? 26.29
Individual not a beneficiary when income arises 26.30
Transfer between trusts 26.31
Tax and tax credits of person abroad 26.32
Section 731 remittance basis 26.33
Relating deemed s.731 income to relevant income and to benefits 26.34
Where is a benefit received? 26.35
Section 720 and 731 remittance basis compared 26.36
Summary of responses to s.731 26.37
Tax return – disclosure 26.38
Transfer of Assets Abroad: Double Taxation Issues
TAA reliefs – Terminology 27.1
Undistributed UK taxable income of offshore company 27.2
Distribution to T of income of company within s.720 27.3
Distribution relief 27.4
Distribution (not to T) of income of company within section 720 27.5
Double-counting relief 27.6
Section 720 trust/company and company/subsidiary structure 27.7
Life policies 27.8
Section 731 charge followed by income distribution 27.9
Section 731 trust/company structure 27.10
Transfer of Assets Abroad: Motive Defence
Motive defence – Introduction 28.1
Motive defence condition A 28.2
Motive defence condition B 28.3
Enactment history 28.4
“Commercial” in Old Condition B 28.5
“Commercial” in New Condition B 28.6
“Avoidance”, “mitigation”, “tax reduction”, “evasion”: introduction 28.7
Meaning of “avoidance” in motive defence 28.8
Meaning of “taxation” in the motive defence 28.9
Identifying and classifying “purpose”: the old conditions 28.10
Identifying and classifying purpose: the New Conditions 28.11
Transfer made for tax and non-tax purposes 28.12
Foresight and purpose 28.13
Subsidiary consequence not necessarily a purpose 28.14
Purpose: advisors and agents of transferor 28.15
Avoidance/mitigation distinction 28.16
Failed indicia of tax avoidance 28.17
Intention of Parliament v intention of Government 28.18
How to ascertain “the evident intention of Parliament”? 28.19
Reduction, deferral and unsuccessful avoidance 28.20
Practical examples: introduction 28.21
Trust transfers where settlor excluded 28.22
Foreign settlor; UK and non-UK beneficiaries 28.23
Foreign settlor; only UK beneficiaries 28.24
UK settlor and UK beneficiaries 28.25
UK settlor; foreign beneficiaries 28.26
UK settlor; UK and foreign beneficiaries 28.27
Transfer to trust; settlor a beneficiary 28.28
Appointing non-UK trustees of UK trust: avoiding IT or CGT? 28.29
When is a trust transfer made for the purpose of avoiding IHT? 28.30
Transfer of assets from non-resident trust to non-resident 28.31
Non-resident foreign domiciled individual transfers UK property 28.32
Transfer by UK resident foreign domiciled individual to offshore 28.33
Transfer to UK resident foreign incorporated company 28.34
Transfer from one trust to another trust 28.35
Time to ascertain purpose of transferor 28.36
Time to ascertain intention of Parliament and changes in law 28.37
Associated operations: introduction 28.38
Associated operations and motive defence before 5 December 2005 28.39
Transfer and associated operations both after 4 December 2005 28.40
When do associated operations have a tax avoidance purpose? 28.41
Consequences of tainted operation 28.42
Income arising before tainted operation 28.43
Transfer before and operation after 5 December 2005 28.44
Tax return: disclosure of motive defence claim 28.45
Dealing with HMRC enquiries 28.46
Appeals 28.47
Can an individual disclaim the motive defence? 28.48
Motive defence: commentary 28.49
Life Policies and Contracts (“Bonds”)
Policies – Introduction 29.1
Policies – definitions 29.2
Outline of provisions 29.3
Liability of individuals and individual “creators” 29.4
Liability of UK trust 29.5
Non-resident trusts and companies 29.6
Section 624 and chargeable event gains 29.7
Liability of personal representatives 29.8
Planning for immigrant to UK 29.9
Personal portfolio bonds 29.10
CGT exemption for policies 29.11
IHT on policy held by foreign domiciliary 29.12
Offshore Funds
Offshore funds – Introduction and terminology 30.1
Meaning of “offshore fund” 30.2
Mutual fund 30.3
Umbrella arrangements 30.4
Arrangements comprising more than one class of interest 30.5
Winding up exemption 30.6
Share buy backs and share issuance 30.7
Fixed life companies 30.8
“Reporting” and “non-reporting” funds 30.9
Charge to tax on OIGs 30.10
Meaning of “disposal” 30.11
Death of individual 30.12
OIG remittance basis 30.13
OIG accruing to UK trust 30.14
OIG non-residence defence 30.15
OIG accruing to non-resident trust 30.16
Outline of OIG anti-avoidance provisions 30.17
OIG TAA provisions 30.18
OIG s.87 charge 30.19
OIG s.13 charge 30.20
OIGs and s.86 TCGA 30.21
Interaction of anti-avoidance provisions 30.22
Priority between OIG s.87 and OIG TAA provisions 30.23
Priority between OIG s.720 and OIG s.87 30.24
Interaction of OIG s.87 and OIG TAA provisions where
motive defence applies 30.25
OIG accruing to a partnership 30.26
Computation of OIGs 30.27
Computation of CGT chargeable gain on disposal of offshore fund 30.28
Losses 30.29
Distributed income of offshore fund 30.30
Undistributed income of reporting funds 30.31
Undistributed income of non-transparent funds 30.32
Transparent funds 30.33
Non-reporting fund with interest in reporting fund 30.34
Transactions treated as non-trading 30.35
Exemptions 30.36
Conversion from non-reporting fund to reporting fund 30.37
Transitional rules 30.38
Accrued Income Profits
Accrued income profits – Introduction 31.1
AIP securities 31.2
“Transfer” 31.3
Transfer “with accrued interest” 31.4
Deemed interest payment, credit and debit 31.5
Accrued income profits and losses 31.6
Charge on AIP income 31.7
Relief for accrued income losses 31.8
HMRC examples 31.9
Excluded persons 31.10
AIP non-residence defence 31.11
AIP remittance basis 31.12
Settlor-interested trusts 31.13
Transfer of assets abroad 31.14
Double taxation relief 31.15
Interaction with CGT 31.16
Foreign currency securities 31.17
Deeply Discounted Securities
DDS – Introduction 32.1
Meaning of “deeply discounted security” 32.2
Securities denominated in foreign currency 32.3
Meaning of “disposal” 32.4
Meaning of “profit” 32.5
Charge to tax on DDS 32.6
DDS remittance basis 32.7
UK resident trust 32.8
Non-resident individual 32.9
Non resident trust 32.10
Transfers of assets abroad 32.11
Non-resident company 32.12
Interaction with CGT 32.13
Offshore Unit Trusts
Definition(s) of “unit trust” 33.1
Income accruing to unit trust 33.2
Gains accruing to unit trust 33.3
Situs of unit 33.4
Gain accruing on disposal of unit 33.5
Partnerships
Partnerships - Introduction 34.1
“Trade” “firm” and “partnership” 34.2
Transparency of partnership for IT 34.3
Partnership income: remittance basis 34.4
Resident and non-resident partners 34.5
DTT relief for partnership 34.6
Residence of partnership 34.7
Transparency of partnership for CGT 34.8
Limited liability partnership 34.9
Non-Residents Income Tax Relief
Limit on liability for non-residents – Introduction 35.1
Relief for non-resident individuals and trustees 35.2
Amount A 35.3
Amount B 35.4
Further condition for trusts 35.5
Disregarded income 35.6
Disregarded savings and investment income 35.7
Disregarded annual payments 35.8
Disregarded pension/social security income 35.9
Limit on liability: companies 35.10
Collection of Tax from UK Representatives
Collection of tax directly from non-residents 36.1
Collection of tax from UK representative 36.2
“UK representative” 36.3
Partnerships 36.4
Agents not treated as UK representatives 36.5
Casual agent exemption 36.6
Subsidiary points 36.7
Significance and meaning of “independent agent” 36.8
Investment Manager Exemptions
Investment manager exemptions - Introduction 37.1
IME PE relief 37.2
IME non-residents IT relief 37.3
IME UK representative relief 37.4
Defined terms in IME legislation 37.5
Investment manager conditions 37.6
The 20% rule 37.7
Independent broker conditions 37.8
Transactions through brokers 37.9
Relevance of financial trading to IME 37.10
When is there a trade in financial assets? 37.11
Loans From Non-resident Companies
Advantages of loans from non-resident companies 38.1
Non-tax aspects 38.2
Loans to participators 38.3
Benefits to participators 38.4
Employment-related loan 38.5
Meaning of “employment-related loan” 38.6
Foreign currency loan 38.7
Transactions in securities 38.8
“Income tax advantage” 38.9
The motive defence 38.10
The TIS circumstances 38.11
Discussion 38.12
Schedule 4B TCGA 1992 38.13
Rates of Tax and Personal Allowances
IT rates – Introduction 39.1
Basic/higher/additional rates 39.2
Starting rate for savings income 39.3
Rates of tax on dividend income 39.4
Settlor-interested trust: rates of tax on settlor 39.5
Rates of tax on transferor within s.720 ITA 39.6
Entitlement to personal allowances 39.7
Rates of CGT 39.8
National Insurance Contributions
NICs – Introduction 40.1
Meaning of “employed” and “self-employed” 40.2
Meaning of “secondary contributor” 40.3
Territorial Limitation 40.4
ROW: Employed in GB 40.5
ROW: Residence requirements 40.6
Primary and Secondary Class 1 NIC: HMRC examples 40.7
ROW: Class 2 NIC 40.8
ROW: Class 3 NIC 40.9
Place of business in UK 40.10
Residence and ordinary residence 40.11
The EU Regulation 40.12
Persons covered by the EU Regulation 40.13
EEA: Tie-breaker rules 40.14
EEA: Self-employed rules 40.15
Special cases by agreement 40.16
Class 4 contributions 40.17
Partnerships 40.18
Capital Gains Tax of Individuals
Territorial scope of CGT 41.1
CGT remittance basis 41.2
Interaction of remittance basis and abolition of taper 41.3
Liquidation of offshore company 41.4
CGT planning: making UK situate property non-UK situate 41.5
Structure for UK trading company 41.6
UK resident trust 41.7
Gains of Non-resident Trusts: s.86
CGT on trusts – Introduction 42.1
Fundamental s.86 conditions 42.2
Qualifying settlement 42.3
Trustee residence condition 42.4
Settlor residence and domicile condition 42.5
Settlor-interested condition 42.6
Section 86 amount condition 42.7
Year of death of settlor 42.8
Death or divorce of certain beneficiaries 42.9
Application of s.86 42.10
Interaction of s.86 and s.13 TCGA 42.11
Two settlors for CGT s.86 charge 42.12
Interaction of ss.86 and 87 TCGA 42.13
Corporate settlor 42.14
Role of non-resident trusts from 2008 42.15
UK resident trust 42.16
Rates of tax on s.86 charge 42.17
Gains of Non-resident Trusts: s.87
The s.87 charge – Introduction 43.1
“Settlement” and “trustee” 43.2
Non-resident settlement condition 43.3
The s.87 charge 43.4
Section 2(2) amount 43.5
Capital payment 43.6
Receipt from the trustees 43.7
Capital payments from companies 43.8
Capital payments to companies 43.9
Matching 43.10
Planning by matching 43.11
Capital payment received by non-beneficiary 43.12
Interest surcharge 43.13
Non-resident beneficiary 43.14
Section 87 remittance basis 43.15
Migrant settlements 43.16
UK resident treaty non-resident trust 43.17
Four basic strategies for the s.87 charge 43.18
Transfer between trusts 43.19
Should trustees hold assets through a trust subsidiary? 43.20
1981 transitional relief 43.21
1998 transitional relief 43.22
Deducting pre-2008 capital payments from pre-2008 s.2(2) amounts 43.23
Pre-2008 inter-trust transfer 43.24
Pre-2008 capital payments 43.25
Pre-2008 trust immigration 43.26
Pre-2008 capital payments and pre-2008 s.2(2) amounts 43.27
Rebasing - introduction 43.28
Rebasing: the election 43.29
Rebasing: the relief 43.30
Rebasing - HMRC examples 43.31
Rebasing - supplementary provisions 43.32
Rebasing – OIG amounts 43.33
Rebasing - transfers between trusts 43.34
Record keeping 43.35
Role of non-resident trusts from 2008 43.36
Gains of Non-Resident Companies
Section 13 TCGA – Introduction 44.1
Attribution of gains to participator 44.2
Non-resident trustees 44.3
Computation of gains accruing to non-resident company 44.4
Identifying the participators 44.5
Overlapping participators: trusts 44.6
Amount of gain attributed to each participator 44.7
Overlapping participators: loan creditors 44.8
CG Manual examples: shareholders v. loan creditors 44.9
Chains of companies 44.10
Chains of companies not wholly owned 44.11
Section 13 remittance basis 44.12
10% de minimis exemption 44.13
Non-resident trading company 44.14
Non-resident company within CT 44.15
Pension schemes 44.16
Partnership holding non-resident company 44.17
Company distribution relief 44.18
Company disposal relief 44.19
Reimbursement by non-resident company 44.20
Loss accruing to non-resident company 44.21
Negligible value claims 44.22
Non-resident group relief 44.23
Private residence relief 44.24
Administration and appeals 44.25
Capital Losses
Deduction of losses 45.1
Allowable loss 45.2
Loss accruing to non-resident 45.3
Carry-back of losses on death 45.4
Loss accruing to non-resident trustees 45.5
Disallowance of personal losses against s.87 gains 45.6
Personal losses and s.86 gains 45.7
Loss accruing to remittance basis taxpayer 45.8
Disallowance of foreign losses if no election is made 45.9
Position if loss election is made 45.10
When is a loss election worthwhile? 45.11
Inter-spouse transfer 45.12
Foreign Currency Issues
Foreign currency issues – introduction 46.1
CGT: Currency conversion date 46.2
Trading income and property income 46.3
Income taxed on arising basis: currency conversion date 46.4
Sterling income converted to foreign currency 46.5
Income taxed on remittance basis: currency conversion date 46.6
IT/CGT interaction - remittance from foreign currency bank account 46.7
Sub-£2k taxpayer: currency conversion date 46.8
Nominated income and gains: currency conversion date 46.9
Tax credit relief: currency conversion date 46.10
Foreign currency bank accounts: CGT 46.11
Meaning of “disposal” of bank account 46.12
Share matching rules or part disposal rules? 46.13
Concessions for bank account computations in practice 46.14
Foreign currency not in a bank account 46.15
Foreign currency for personal expenditure 46.16
Interaction with mixed fund rules and HMRC examples 46.17
Commentary: solution to foreign currency problems 46.18
Double Taxation Reliefs for Income Tax and CGT
DT reliefs - Introduction 47.1
Types of DT relief 47.2
Types of residence and significance of DT reliefs 47.3
Incorporation of DTTs into UK law 47.4
Foreign tax credit relief 47.5
Foreign tax credit relief: property income 47.6
CGT/IT computation deduction 47.7
Indirect DT reliefs 47.8
The characterisation issue 47.9
DT reliefs and gains of remittance basis taxpayer 47.10
DT reliefs: s.624 ITTOIA 47.11
DT reliefs: section 720 ITA 47.12
DT reliefs: s.731 ITA 47.13
DT relief: s.13 TCGA 47.14
Foreign tax credit: s.13 TCGA 47.15
DT reliefs: offshore income gains 47.16
DT reliefs: s.77 TCGA 47.17
DT reliefs: s.86 TCGA 47.18
Restriction on DTR for gains of trustees and settlors 47.19
DT reliefs: s.87 TCGA 47.20
Restriction on DTR for trading income 47.21
USA DTT 47.22
“Subject to tax” 47.23
EU LAW Defence to Anti-avoidance Provisions
EU law defence – Introduction 48.1
Freedom of establishment 48.2
Restriction on freedom of establishment 48.3
Abuse and justification 48.4
Freedom to provide services 48.5
Section 13 TCGA 48.6
Section 720 ITA 48.7
Section 86 TCGA 48.8
Deemed Domicile for IHT
Three classes of domicile for inheritance tax 49.1
Deemed UK domicile 49.2
Deemed domiciliary leaving the UK 49.3
Domicile of child of a deemed domiciliary 49.4
When deemed domicile does not matter: exempt gilts and DTTs 49.5
1974 transitional rules 49.6
Tax planning for the deemed domiciliary 49.7
Excluded Property for IHT
Excluded property – Introduction 50.1
Non-settled property: foreign situate property 50.2
Non-settled property: authorised unit trusts and OEICs 50.3
Non-settled property: FOTRA securities 50.4
Beneficial ownership 50.5
UK funds v foreign funds 50.6
Individual domiciled in Channel Islands or Isle of Man 50.7
Trusts: foreign situate property 50.8
Trusts: authorised unit trusts and OEICs 50.9
Trusts: FOTRA securities 50.10
Estate IP trust 50.11
Initial interest of settlor or spouse 50.12
Settlor adds property to trust after change of domicile 50.13
Occasions where excluded property is relevant for IHT 50.14
Transfer of value by close company 50.15
Equitable interests 50.16
Non-residents foreign currency bank accounts 50.17
Works of art 50.18
IHT planning for individual 50.19
IHT planning for non-estate IP trusts 50.20
IHT planning for trustees of settlement with UK domiciled settlor 50.21
Reservation of Benefit
GWR – Introduction 51.1
Terminology 51.2
Disposal before 18 March 1986 51.3
When is there a “disposal by way of gift”? 51.4
When is there a reservation of benefit? 51.5
IHT on the disposal by way of gift 51.6
Gift of excluded property 51.7
GWR spouse exemption 51.8
GWR death charge 51.9
GWR over debt owed by the deceased 51.10
GWR death charge: non-settled property excluded property rules 51.11
GWR death charge: excluded property rules for settled property 51.12
Gift to foreign domiciled donee who creates a settlement 51.13
GWR PET charge 51.14
GWR on termination of interest in possession 51.15
GWR property subject to debt 51 16
Planning and disclosure 51.17
IHT spouse exemption defence to GWR death charge 51.18
IHT Consequences of Transfers Between Trusts
Transfers between trusts – Introduction 52.1
Trust law background 52.2
General tax principles 52.3
The separate settlements fiction 52.4
B adds property to A’s trust 52.5
Direct settlor and indirect settlor 52.6
Transfer from trust made by A to trust made by B 52.7
Transfer from trust made by A to another trust made by A 52.8
The same settlement fiction: section 81 52.9
Pension benefits 52.10
IHT Deduction for Debts
IHT deduction for debts – Introduction 53.1
Liability of individual 53.2
Section 103 FA 1986 53.3
The amount of deduction for a debt 53.4
Deduction for debt of foreign domiciled individual 53.5
Individual borrows and acquires excluded property 53.6
Debt owed by individual to trust 53.7
Debts to and from trusts 53.8
Deduction for debts of trustees 53.9
Debt owed by trust to life tenant 53.10
Trustees borrow and acquire excluded property 53.11
Funeral expenses 53.12
Deduction for foreign taxes 53.13
IHT Planning Before and after a Change of Domicile
IHT planning in anticipation of acquiring UK domicile 54.1
IHT planning: trust with foreign domiciled settlor 54.2
Trust with UK domiciled settlor who later acquires foreign domicile 54.3
IHT on Death: Wills and IOVs
IHT spouse exemption on death of a foreign domiciliary 55.1
Will drafting – General approach 55.2
Instruments of variation (“IOVs”) 55.3
IHT DTTs: India, Pakistan, Italy, France
IHT double tax treaties – Introduction 56.1
UK and EU aspects of IHT DTTs 56.2
Application of estate duty DTTs to IHT 56.3
Treaty IHT exemption 56.4
Domicile requirement of treaty IHT exemption 56.5
Treaty-situs 56.6
Proper law 56.7
Transferable nil rate bands and IHT DT reliefs 56.8
Claims for treaty IHT exemption 56.9
Foreign IHT Credit Relief
USA IHT treaty – Introduction 57.1
Scope 57.2
Taxes covered 57.3
Definitions 57.4
Treaty-domicilE 57.5
IHT exemptions for individuals 57.6
IHT exemption for trusts 57.7
Requirement to pay foreign tax 57.8
Dual-situate assets 57.9
Immovable property 57.10
Business property 57.11
Deductions 57.12
Extension of IHT spouse exemption 57.13
Non-discrimination 57.14
Other articles 57.15
Unilateral Foreign IHT Credit
Foreign IHT credit - Introduction 58.1
Requirement to pay foreign tax 58.2
Use of foreign IHT credit 58.3
Amount of credit 58.4
Concession for UK situate property 58.5
Planning 58.6
DTT IHT credit: pre-CTT DTTs 58.7
USA DTT: Credit for foreign IHT 58.8
Claims for foreign IHT credit relief 58.9
UK Domiciliary Married to Foreign Domiciliary
UK domiciliary married to foreign domiciliary – Introduction 59.1
Restricted IHT spouse exemption for foreign domiciled spouse 59.2
Spouse or widow of settlor becomes entitled to settled property 59.3
Disposition for maintenance of spouse and other exemptions 59.4
Transferable nil-rate band 59.5
Inter-spouse gift of 100% BPR or APR property 59.6
Divorce settlement: foreign domiciled and UK domiciled 59.7
Joint accounts 59.8
Scottish joint account 59.9
Associated operations on inter-spouse gift 59.10
IHT planning for mixed marriage 59.11
CGT spouse exemption 59.12
CGT planning for mixed marriage 59.13
Income tax planning for mixed marriage 59.14
The Family Home and its Chattels
Home owned by foreign domiciliary 60.1
Home owned by estate IP trust 60.2
Home owned by discretionary trust 60.3
Loan secured on property 60.4
Home owned by non-resident company 60.5
Home owned by company: benefit in kind charge 60.6
“Family” and “household” 60.7
“By reason of the employment” 60.8
Accommodation available but not used 60.9
Shadow directors 60.10
Who is a shadow director? 60.11
The cash equivalent: ss.105 and 106 computations 60.12
Cost of providing accommodation 60.13
Accommodation costing £75,000 or less: section 105 computation 60.14
Accommodation over £75,000: section 106 computation 60.15
Revaluation of cost in cases of delayed occupation 60.16
Accommodation provided for more than one employee 60.17
Ways to avoid benefit in kind 60.18
Reimbursement as solution to IT charge 60.19
Property purchase financed by the foreign domiciliary 60.20
Co-ownership defence to living accommodation charge 60.21
Other defences to BiK charge 60.22
Foreign homes relief 60.23
Benefit in kind: remittance basis taxpayer 60.24
Benefits in kind: non-resident individual 60.25
DTT defence to BiK charge 60.26
Other planning possibilities using companies 60.27
Dealing with companies at risk of IT charge 60.28
Dealing with living accommodation enquiries in practice 60.29
Living accommodation charge: commentary 60.30
Section 731 charge 60.31
Transfer pricing and non-resident company holding family home 60.32
SDLT on living accommodation charge 60.33
Chattels held by companies 60.34
“Person providing benefit” 60.35
Pre-Owned Assets
Pre-owned assets – Introduction 61.1
Human rights 61.2
POA land charge 61.3
The disposal conditions 61.4
The contribution conditions 61.5
“Provide” 61.6
POA chattel charge 61.7
POA intangible property charge 61.8
Excluded transactions 61.9
Excluded transactions: disposal conditions 61.10
Excluded transactions: contribution conditions 61.11
Meaning of “outright gift” 61.12
Exemptions from charge 61.13
“Relevant property” 61.14
Estate exemptions 61.15
Derived property 61.16
Excluded liability rule 61.17
Value of estate “reduced” by liability 61.18
Reverter to settlor restriction 61.19
GWR exemptions 61.20
Full consideration exemption 61.21
Partnerships 61.22
Non-resident taxpayer 61.23
UK resident foreign domiciliary 61.24
Former foreign domiciliary 61.25
Quantum of charge – land 61.26
Quantum of charge – chattels 61.27
Quantum of charge – intangible property 61.28
Overlap of land and intangible property charges 61.29
Interaction with benefit in kind charge 61.30
De minimis exemption 61.31
Election out of POA regime 61.32
Election and Eversden schemes 61.33
Election in case of double trust schemes 61.34
Unwinding existing structures 61.35
Is existing scheme validly created? 61.36
Commentary 61.37
Estates of Deceased Persons - CGT
Succession law background 62.1
Meaning of “PRs” for CGT 62.2
Residence and domicile of PRs for CGT 62.3
Acquisition by PRs 62.4
Transfer from PRs to beneficiaries 62.5
Deceased not UK resident 62.6
Gains accruing to non-resident company held by non-resident PRs 62.7
Deceased UK resident 62.8
CGT planning for UK resident PRs 62.9
CGT planning by IoV 62.10
Succession governed by foreign law 62.11
Estates of Deceased Persons: Income Tax
Income taxation of estates: introduction 63.1
Residence of PRs for income tax 63.2
Income taxation of PRs 63.3
Income from specific legacy 63.4
Income from residuary estate 63.5
Absolute/limited/discretionary interest in residue 63.6
“UK estate” and “foreign estate” 63.7
Payment 63.8
Charge on estate income 63.9
Estate income 63.10
Amount of estate income 63.11
Person liable 63.12
“Basic amount of estate income” 63.13
Assumed income entitlement 63.14
Beneficiary a trustee or a remittance basis taxpayer 63.15
Non-resident beneficiary of UK estate: DTT relief 63.16
Non-resident beneficiary of UK estate: concessionary relief 63.17
Non-resident beneficiary of foreign estate 63.18
Time limits for claims and assessments 63.19
Who is the Settlor?
Why does it matter who is the settlor? 64.1
Definitions of “settlement” 64.2
Definitions of “settlor” 64.3
Gift from A to B followed by gift to trust by B 64.4
Trust created by B at request of A 64.5
Appointment from old trust to B followed by gift to new trust by B 64.6
Transfer from trust A to trust B by exercise of trustees’ power 64.7
Assignment or surrender of equitable interest 64.8
Disclaimer 64.9
Variation or resettlement by beneficiaries 64.10
Variation under Variation of Trusts Act 1958 64.11
Exercise of power of appointment or advancement 64.12
Consent to exercise of power 64.13
Provision of property for company held by trust 64.14
Provision of services 64.15
Interest-free or back-to-back loan 64.16
Indemnities 64.17
Guarantees 64.18
Repayment of loan made by trustees 64.19
Sale or share issue at undervalue 64.20
Failure to exercise right of reimbursement 64.21
Payment of administrative expenses 64.22
Trust retains life tenant’s income 64.23
Purpose: minor settlor 64.24
Purpose: advisers and agents of settlor 64.25
Settlement made by court for person lacking capacity 64.26
Settlement made by compromise of claim of minor or person 64.27
Trust under Criminal Injuries Compensation Scheme 64.28
Trust made in divorce settlement 64.29
Trust made by instrument of variation 64.30
IT and CGT – IoVs from 6 April 2006 64.31
Pension trusts and employee trusts 64.32
Trust made by company: are shareholders settlors? 64.33
Planning to create trust with foreign domiciled settlor 64.34
Situs of Assets for IHT
Concepts of situs 65.1
Every asset has one situs 65.2
Situs of shares: general principle 65.3
Situs of registered shares 65.4
Registered debt securities 65.5
Securities of international organisations 65.6
Bearer documents 65.7
Securities held in clearing systems: depository receipts 65.8
Share certificate endorsed in blank 65.9
Letter of allotment of shares 65.10
Simple contract debt 65.11
Specialty obligation 65.12
Debt secured on land 65.13
Debt under letter of credit 65.14
Judgment debt 65.15
Bank account 65.16
Building society account 65.17
Insurance policy 65.18
Land 65.19
Chattels 65.20
Ships and aircraft 65.21
Goodwill and intellectual property 65.22
Property subject to contract of sale 65.23
Interest under bare trust or nomineeship 65.24
Equitable interest under a substantive trust 65.25
Unadministered estate of deceased person 65.26
Situs of partnership share 65.27
Situs of Assets for CGT
Situs of assets for CGT – Introduction 66.1
Municipal and government shares/debentures 66.2
Shares/debentures: UK incorporated company 66.3
Registered shares/debentures: non-UK company 66.4
Meaning of “shares” and “debentures” 66.5
Bearer shares/debentures: non-UK company 66.6
Securities of international organisation 66.7
Debts: general situs rule 66.8
Judgment debt 66.9
Bank account 66.10
Intangible assets 66.11
Futures and options 66.12
Co-ownership 66.13
Depository receipts 66.14
Insurance policy 66.15
Land 66.16
Chattels 66.17
Ships and aircraft 66.18
Goodwill 66.19
Interest under bare trust or nomineeship 66.20
Equitable interest under a substantive trust 66.21
Intellectual property 66.22
Unadministered estate of deceased person 66.23
Disclosure and Compliance
Standards of disclosure and mistake 67.1
Self-assessment tax return: minimum disclosure 67.2
Neglect 67.3
Significance of reasonable excuse 67.4
Advantages of above-minimum disclosure 67.5
Voluntary disclosure to curtail enquiry period 67.6
Above-minimum disclosure for sake of good relations with HMRC 67.7
Above-minimum disclosure to avoid allegation of bad faith 67.8
IHT reporting requirement on creation of settlement 67.9
Reporting on death of foreign domiciled individual 67.10
Proceeds of Crime Act 2002 and disclosure of tax avoidance schemes 67.11
Categorisation of Foreign Entities
Introduction 68.1
Definitions of UK entities and related terms 68.2
Nomineeships 68.3
Sham under foreign entities 68.4
Liechtenstein foundation (Stiftung) 68.5
Liechtenstein Anstalt (Establishment) 68.6
Liechtenstein Treuunternehmen 68.7
Liechtenstein Treuhandschaften 68.8
Other Liechtenstein entities 68.9
American revocable trusts (grantor trusts) 68.10
Legal life interest (Northern Ireland) 68.11
Proper liferent (Scotland) 68.12
Usufructs 68.13
Société civile and Société en nom collectif 68.14
Jersey general and limited partnerships 68.15
Foreign limited liability partnership 68.16
Hindu undivided property 68.17
Japanese tokkin 68.18
US limited liability company 68.19
HMRC official list of transparent and opaque entities 68.20
Stamp Taxes Manual body corporate list 68.21
Share capital 68.22
Control, Connected, Close and Related Expressions
Introduction 69.1
Control – Introduction 69.2
Control in strict sense 69.3
Control in ultra-wide sense 69.4
“Nominees” 69.5
Meaning of “associate” 69.6
Attribution of rights of associates and controlled companies 69.7
Connected person 69.8
Connection with family members 69.9
Connection with trustees 69.10
Connection with partnership 69.11
Connection with company 69.12
Why does it matter who is a participator? 69.13
Definition of participator 69.14
Loan Creditorv 69.15
Definition of close company 69.16
Control test 69.17
Close company condition B: winding-up test 69.18
Exceptions to close company test 69.19
Pension fund 69.20
Quoted company exemption 69.21
Permanent Establishment and Branch/agency
Why does permanent establishment matter? 70.1
Meaning(s) of “permanent establishment” 70.2
Fixed place of business 70.3
Agency PE 70.4
Independent agent 70.5
Controlled companies and group companies 70.6
PE: preparatory and auxiliary activities 70.7
Alternative finance arrangements 70.8
PE in old-style treaties 70.9
Why does branch/agency matter? 70.10
Meaning of “branch or agency” 70.11