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Stephanie ChurchillAssociate Director07528 970158
Tax Risk, Disputes and Investigations – an offshore perspective
Tax Risk, Disputes and Investigations – an offshore perspective
Jacqui FlemingSenior Manager07528 970021
Jacqui FlemingSenior Manager07528 970021
Topics covered this evening
HMRC’s new ways of working
Schedule 36 information requests
HMRC’s disclosure campaign – who’s next?
Residency issues
Domicile
HMRC’s new ways of working
Previously investigations – then enquiries – now “Compliance checks”
Aim to be less confrontational
“Informal” approach now being adopted
Any less serious?
Schedule 36 information requests
Information now requested, rather than demanded in the first instance
Closely linked in with Schedule 36 requests – the “formal” approach
Should we comply with an informal request?
What is HMRC’s entitlement?
Talk to a tax adviser
Sch 36 FA 1988 covers HMRC’s information and inspection powers
Para 1 requires a person to provide information or produce documents
reasonably required for the purpose of checking their tax position
Para 2 refers to another person’s tax position
“Tax position” is a person’s position as regards any past, present and
future tax liabilities
Inspection powers – without warrant:
prior agreement 7 days by notice announced or unannounced
An officer…may enter business premises and inspect:
the premises business assets on those premises business documents on those premises
if the inspection is reasonably required for the purpose of checking the tax position
Restrictions:
that person enter premises – not force entry inspect only – not search or interview HMRC cannot “search, rummage or wander around unaccompanied
without the taxpayer’s consent”
What is a business premises?
part of a house? office upstairs?
HMRC’s disclosure campaign – who’s next?
Recent use of S36 notices
Tax Health Plan – not as successful as anticipated
Fewer disclosures under the New Disclosure Opportunity than expected
Increased access to the LDF
HMRC intending to target further trades – no details yet but likely to be linked to “high risk” profiles
Residence
• Should be simple………………
• Only one statutory test and that is whether or not an individual has been physically present in the UK for 183 days or more in a tax year
• To work out whether this has been breached, now need to look at where the individual is at midnight BUT
a day trip will not count as a day of residence concessions exist for passengers travelling through the UK
Non – Resident?
• BUT – what about trying to leave the UK? Natural and ordinary meaning??
• HMRC 6 – can it be relied upon? Huitson case might help
• Need to demonstrate a ‘clear and distinct break’
• Can you rely on 90 day rule?
• Recent case law developments Gaines-Cooper Grace Shepherd
Gaines - Cooper
UK Position HMRC successfully contended
no distinct break Wife and children remained in
the UK UK property available for use Regular contact with friends Pheasant shooting! Rolls Royce Enthusiast Club Regular attendance at garden
opera Child attended school here English Will
Non UK Links Plantation Bois Noir Family pets Wish to have ashes scattered
there Reef Golf Course membership Fishing / bird island Personal belongings /
photographs National Council for Children
BUT:
• Courts ruled that there was not enough evidence to support that Mr Gaines-Cooper had made a distinct break, neither were his subsequent visits to the UK for a ‘temporary purpose’
• Result – UK domiciled, resident and ordinarily resident!
The Future?
• HMRC/professional bodies working to agree a statutory residence test to try and provide those tax payers seeking to achieve non-residency some certainty.
• No draft legislation yet but watch this space!
• Now part of residence/ domicile review
To look out for…..
• Clients who have historically claimed non-residence but retain link with UK
• If leaving now, have to advise to:
Sell property (or get long term tenants)
Stay outside UK for first whole tax year if possible
Keep visits to a minimum until HMRC have accepted non resident claim
Don’t remain a member of any clubs or associations in the UK
Take your immediate family with you!!
Domicile
• Often confused with residency
• BUT very different concept
• ‘Permanent home’ - not influenced by: Number of days spent in the UK Where you are tax resident
Three means of establishing domicile:
Domicile of origin
Domicile of dependence
Domicile of choice
Where’s your father from?!
That is the question!
Domicile of origin
•Default domicile
•Always the domicile of your father at the time you were born (if a marital child) or your mother (if non-marital child)
•Sounds simple? Not always!
Father born in India
Father born in India
Son born in UK
Son born in UK
Daughter born in India
Daughter born in India
Grandsonborn in UK
Grandsonborn in UKDomicile of origin
from Father
Domicile of originfrom Father
Domicile of origin
Domicile of dependence
• Applies to:
Children under 16 years of age– Domicile will automatically change if parents change theirs– At age 16, will automatically adopt domicile of choice
Women married before 1 January 1974– Automatically adopted domicile of husband– When legislation changed in 1974, treated as adopting a domicile of
choice if married at this date– Positive action needs to be taken to lose this!
Domicile of choice
• Can renounce domicile of origin or dependency in favour of domicile of your choice
• BUT can be extremely difficult to establish a new domicile
• At the very least: Need to leave country of origin and relocate with intention of living there
permanently Need to demonstrate intention to reside outside country of origin with
positive actions
Deemed domicile
• UK IHT purposes only
• Provisions apply if: resident in UK during any three previous tax years resident in UK in not less than seventeen of the previous twenty tax
years
• If deemed domiciled – liable to UK IHT on worldwide assets, regardless of actual domicile status
• But doesn’t apply to Italy, Pakistan and India
India / Pakistan
• Extended definition of domicile for inheritance tax
• Treaty overrides UK "deemed domicile" rule
• Convert UK situs assets into non-UK status assets
• Immediate inheritance tax saving at 40%
• Legal opinion in India/Pakistan required regarding domicile status under Indian / Pakistan law
• Local Will needed to distribute assets on death
Practical aspects of establishing your domicile
•Cultural ties Where were they born / their
parents? What ties/ links do they have with
their country of origin? What social ties are there? Family
/ Social clubs/ religious groups?
•Home Where is the family home?
•Will Where do they intend to be
buried?
•Investments Property? Shares? Bank accounts?
•Relatives Where were they married? Was it an arranged marriage? Where is their extended family?
•Language What is their first language?
Testing your domicile
• Disclosing offshore sources of income on tax return to prompt HMRC enquiry
• Transfer assets into a trust above Nil Rate Band Need to create a tax charge of at least £10,000 before HMRC
will take the point
Remittance Basis Charge
• Brought in from 6 April 2008
• £30,000 charge plus payments on account PLUS loss of personal allowances / CGT annual exemptions
• Payable under self assessment
• 2008/09 was first year for paying the charge
• Applied to: Anyone over 18 With foreign income in excess of £2,000 Who has been UK resident for 7 of the last 9 tax years Who wants to claim the remittance basis of taxation
Practical issues
• Making the claim The self assessment form!
• Cagey clients
• Record keeping!!
• Nominated income / accounts £1 or more? Identifying the source and type of income
When is a remittance not a remittance?!
• Relevant persons – doesn’t include adult children Watch out for grandchildren and school fees though!!!
• Exempt property Public access rule – works of art, collectors items Personal use –Clothing, Footwear, Jewellery, Watches Repair / Restoration Temporary importation <275 days with public access Notional amount remitted < £1,000
Questions?
