TAX PLANNING FOR THE FOREIGN DOMICILIARY - 2nd Edn.
Review by Ralph Ray
It is logical that having regard to the brilliant mind of the two authors, this book covers the subject very well and comprehensively.
The book deals with the subject under the following main heads: Domicile; Income Tax, Foreign Income; The Remittance Basis; Foreign Income; Employment Income; Income Tax Anti-avoidance Provisions; Capital Gains Tax; Basic Principles; Capital Gains Tax and Trusts; Domicile and Inheritance Tax; The Territorial Exemptions; Reservation of Benefits; Inheritance Tax Planning for Individuals. The book is designed for the tax practitioner, not necessarily specialising in foreign clients, but with a considerable number of relevant clients and who wishes to fortify his or her advice in a wide ranging set of circumstances. The book does this admirably. In order to entice the potential reader, herewith are a selection of 'gems' from the book.
* On tax planning for non-domiciliaries: "A basic planning idea, therefore, is as follows: (a) an individual borrows money outside the United Kingdom; (b) he remits the money borrowed; (c) he uses the foreign income to pay the interest on the loan as it accrues".
* On income tax and anti-avoidance provisions: "It will often be worthwhile for a foreign domiciliary to create two foreign settlements, one of which will hold income-producing assets and the other may hold other property; in particular, this settlement can hold the house. This will avoid a tax charge under section 740, Taxes Act 1988".
* On capital gains tax in respect of a United Kingdom branch or agency under section 10, Taxation of Chargeable Gains Act 1992: "These rule can easily be avoided by the well advised taxpayer. The business, including chargeable assets, could be transferred to a company as a going concern in exchange for shares and relief claimed under section 162, Taxation of Chargeable Gains Act 1992 so that the gain is rolled into these shares. This would enable the non-resident to sell the shares in the company free of tax. Section 10 would have no application in these circumstances."
* On changing the situs of shares: "Where a foreign domiciliary owns shares in a United Kingdom trading company, the shares are United Kingdom property and cannot be removed from the United Kingdom. However, could he simply issue bearer shares and deposit them abroad to create foreign property or do these share remain United Kingdom situated property even though they may be placed abroad? In the authors' view this would be an effective means of creating foreign property (see Young v. Phillips 58 TC 232) providing they were placed in a territory where there was a genuine market, and if possible, registered there."
By way of a few critical remarks, the Schedule D remittance chapter 4 is a difficult one to grasp and in particular needs more explanation and examples and perhaps a summary of the main rules could be placed at the end of this and other chapters with some use of flow charts. More emphasis could be made to the capital gains tax advantage of exporting a trust by will where on the death the assets are uplifted to their market value.
Sometimes the reviewer feels that the authors are somewhat too optimistic; for example, on page 130 in respect of inheritance tax excluded property, where the authors suggest: "even a modest settlement could have an advantage as property could be added at a later date when the wealth increases or when further assets are required which need to be protected. Such additions are, in the authors' view, excluded property, even if the settlor is United Kingdom domiciled at the time the property is added to the settlement. All that matters is that the settlor is not United Kingdom domiciled when the settlement is first made. The effect of adding property in this way is not entirely free from doubt ...". Nor can the reviewer refrain from noticing that on pages 97 and 102 there is reference to "Income and Corporation Taxes Act" instead of the Inheritance Tax Act. The index seems to be too scanty.
These criticisms are however relatively minor and overall the book is a first class treatment of the subject not only to be read from cover to cover but to be kept by the elbow for ready reference.
Published in Taxation
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