ICSA Guernsey Branch Tax Seminar 2016

ICSA Guernsey BranchStay Ahead of the Game in Tax

Annual Tax Update 2016Alison Vine17 May 2016

ICSA Tax update 2016

• Tax Transparency

− FATCA Recap

− CRS

• Building up the heat – tax scrutiny

− UK corporate criminal offence of failure to prevent the facilitation of tax evasion

− UK civil sanctions for enablers of offshore evasion

• Reform of UK domicile rules

− Formerly domiciled residents

− Long- term UK residents

• Taxation of UK property –

− ATED changes from 2016

− SDLT changes from 2016

− Proposed IHT changes from 2017

− Rental property changes

Agenda


FATCA Recap

FATCA OverviewRelevant Timings

Notes• 1 – 30 June 2015 – classification of pre-existing individual high value accounts completed• 2 – 30 June 2016 – classification of all other pre-existing accounts• 3 – 30 June 2015 – 2014 US FATCA reporting• 4 – 30 June 2016 – 2015 US FATCA reporting, 2014 and 2015 UK FATCA Reporting

Workstream 2014 2015 2016

Phase 1

Classification of internal entities

Classification of client entities

Implement new onboarding procedures

Strategy, communications and governance

Registration of FIs with IRS

Phase 2

Customer classification and due diligence

Reporting

30 June 2014 (31 Dec 2014 for entities under US FATCA)

22 Dec 2014 in an IGA jurisdiction

1 2

3 4



FATCA – the current agenda as of May 2016

• Finalising reportable account populations

• XML solutions

• Reporting portal logistics

• Client communications (Increase in customer awareness)

• Consideration of FATCA as a process


CRS


The Regulatory TimelineCRS is being implemented on a very short timeframe and is replacing UK FATCA

CRS

US FATCA

Go live: 01/07/14

UK FATCA

2014 2015 2016 2017

June Annual Reporting

Taken over by CRS on 01/01/16

Go live: 01/01/16


CRS in the Crown Dependencies

• For FATCA we saw largely common guidance notes produced across the Crown Dependencies.

• For CRS, the islands are producing separate guidance.

• Both Jersey and Guernsey released their CRS guidance notes in December 2015. Jersey released a second draft in February 2016, and IOM issued their CRS guidance in March 2016.

• There is a difference at a policy level between the guidance. Jersey are adopting an approach such that the existing FATCA guidance can continue to be applied for CRS (provided it does not frustrate the purpose of the agreement).

• The Guernsey approach is to broadly follow the extensive OECD materials rather than the existing local FATCA guidance.


Building up the Heat


Building up the Heat

In advance of UK and global reporting through CRS a number of measures are being put in place to:

• Facilitate last minute reporting of undisclosed offshore accounts/ investments etc

• Impose criminal and civil penalties in the UK for the facilitation of offshore evasion

• Register people with significant control of UK companies (from June 2016)

• Register ultimate beneficial ownership as the legal owner of UK land ( from June 2016)

• Facilitate government to government sharing of information on beneficial ownership with central register of beneficial control ( 2017)

Consultation issued on 16 July 2015

On same day 3 more consultations issued, all in respect of ‘Tackling Offshore tax evasion’:

• Civil sanctions for enablers of offshore evasion• Strengthening civil deterrents for offshore evaders• A new criminal offence for offshore evaders (further consultation after first one in August

2014)

Foreword in each explains how large amount of information will become available to HMRC under UK FATCA and CRS. ‘HMRC has given people ample opportunity to regularise their affairs. In advance of HMRC receiving this new data there will be one last chance for evaders to come forward and put their affairs in order’.

All consultations closed on 8 October 2015.

Draft legislation was included with the Summary of Responses published in December 2015.Further consultation issued 17 April 2016 concerning the specific legislation and guidance required. Closing date 10 July 2016.

A New Corporate Criminal Offence of Failure to Prevent the Facilitation of Evasion


Government plans to introduce a new criminal offence which is committed when a corporation fails to prevent their agent from criminally facilitating tax evasion and the corporation cannot show that it took reasonable steps to prevent this.

Stated aim is to ensure

‘that corporations foster a positive corporate culture of compliance and put in place systems to prevent, detect and report criminal facilitation of tax evasion by their agents’.

Corporates are normally charged in the UK through the ‘identification doctrine’ or ‘directing mind theory’.

The employees who HMRC believe fall into the directing mind category are:

The board of directors, the managing directors ‘and perhaps the senior officers of a company who carry out functions of management and speak and act as the company’.


The offence will apply to evasion of UK

• Income tax

• Capital gains tax

• Inheritance tax

• VAT

Actions which will be regarded as facilitation of offences may include:

• Acting as a broker/conduit

• Providing planning and advice

• Delivery of infrastructure

• Maintenance of infrastructure

• Financial assistance

A New Corporate Criminal Offence of Failure to Prevent the Facilitation of EvasionBefore a corporate criminal liability can be considered it has to be proved, beyond reasonable doubt,:

• An individual has committed tax evasion, and

• That individual has been deliberately aided and abetted in the tax evasion by an agent of the corporate, and

• The corporation failed to take reasonable steps to prevent this.

Where the corporate can demonstrate that it has, on the balance of probabilities, put in place ‘reasonable procedures’ (per Bribery Act) to prevent its agents facilitating tax evasion then it has no case to answer.

In considering what reasonable procedures might be, these may include:

• compliance with any applicable published guidance,

• contractual terms for staff

• training provided to staff,

• steps taken to monitor and ensure compliance.

• UK government recognised it was difficult to tackle the problem of enablers using criminal powers alone.

• The civil sanctions will complement the criminal powers.

• The civil penalty will be linked to the amount of tax which the enabler helped the evader to evade.

• Current suggestion appears to be a maximum penalty of 100% of the tax evaded, with this being reduced based on

• The sanctions will also include naming provisions.

Civil Sanctions for Enablers of Offshore Evasion


Reform of UK Domicile Rules


Introduction

Two key announcements in Summer 2015 Budget:

From April 2017:

1. Those who have a strong connection with the UK having a domicile of origin at birth should not be able to access the remittance basis regime if they return and become UK resident here, even if they have lost that UK domicile as a matter of law (‘Formerly Domiciled Residents’).

2. Those who have been resident in the UK for “more than 15 out of the past 20 tax years” will be treated as deemed UK domiciled for all tax purposes (‘Long-term UK residents’).

A consultation document in respect of these points was issued on 30 September 2015 with responses requested by 11 November 2015.

It was expected legislation would be included in Finance Act 2016, however, there is nothing in the Finance Bill.

© 2016 Deloitte LLP. All rights reserved.


Formerly Domiciled Residents

• Formerly domiciled residents are UK resident individuals who were born in the UK and have a UK domicile of origin.

• Individuals in this category will be taxable on their worldwide income and gains from the point when they become UK resident.

• For IHT purposes their estates will be subject to charge on worldwide assets.

• The consultation document proposed a grace period for IHT purposes only, such that individuals will only be deemed domiciled for IHT if they have been UK resident in one of the two preceding tax years.

• Excluded property trusts will be brought into the relevant property regime (ie treated as made by a UK domiciled), so trustees will have IHT reporting obligations. There is likely to be no grandfathering. As a result an affected trust may be subject to IHT for events on or after 6 April 2017 with a grace period only in respect of the residence rule.



Long-Term UK Residents

• Individuals who are resident in at least 15 of the previous 20 tax years will be deemed to be UK domiciled for all tax purposes.

• If deemed domiciled:

o UK income and gains taxable as they arise – no change

o No remittance basis for foreign income and gains.

o Worldwide assets within scope of IHT.

• Per Budget 2016, a rebasing of assets at 5 April 2017 will apply if become deemed domiciled on 6 April 2017, but details and the extent to which rebasing will apply is unclear.

• Deemed domicile applies even if non-UK resident in year 16.

• Could be deemed domiciled after being UK resident for 13 full tax years and two part tax years.

• May need to be non-UK resident for 6 whole tax years to break deemed domicile.

• Remittance basis still available pre-deemed domicile, but remittance basis income/gains taxable if remitted later.

• Grandfathering may apply for those who “left” before the Summer 2015 Budget (8 July 2015).



All Deemed UK DomsAssets held through Offshore Company

Company

• UK income received by company may be taxable on shareholder (no change)

• UK gains made by company may be taxable on shareholder when they arise if own >25% shares

• Foreign income and gains may be taxable on the same basis under UK anti-avoidance provisions as they arise

• Value of shares may be rebased to 5 April 2017 value if become deemed domiciled on 6 April 2017 under long-term UK resident rule

• The value of the shares will be part of the individual’s estate for IHT

• Offshore companies still provide protection for non-UK residents and UK resident non-doms to hold UK assets, except UK residential property.



Taxation of UK Property


Residential Property Changes Since 2012

April 2013 20 March 2014 4 Dec 2014 April 2015

•ATED and ATED-related CGT introduced for residential properties worth > £2m;

•15% SDLT for ATED properties (from 21 March 2012)

April 2016 6 April 2017

•15% SDLT for ATED properties worth more than £500k

•SDLT rates become progressive (but not for 15% rate)

•ATED threshold lowered to £1m.

•ATED charges increased by 50%

•NRCGT introduced.

•LBTT replaces SDLT in Scotland

•ATED threshold lowered to £500k

•Higher rates of SDLT (extra 3%) for purchases (for more than £40,000) of buy to let or second homes

•Look-through of opaque structures for IHT purposes

•SDLT filing and payment deadlines may reduce from 30 to 14 days

Annual Tax on Enveloped Dwellings (ATED)2016 Changes

• From 1 April 2016 the charge applies to dwellings worth £500k to £1m too.

• The charge for 2016/17 was £3,500.

• Return and payment for 2016/17 were due by 30 April 2016.

• The valuation date is 1 April 2012 or later (if purchased after that date). Next valuation date 1 April 2017.

• The same rules apply to this category as to the £2m+ charges already in place.

• Residential properties which fall within ATED, worth £500k or above, purchased after 20 March 2014 by an ‘envelope’, will be subject to the higher rate of SDLT of 15%.

• From 1 April 2016 reliefs (from ATED and 15% SDLT) extended to equity release schemes, property development activities and properties occupied by employees.

SDLTRecent Changes•From 4 December 2014 SDLT on the purchase of residential property only will be calculated based on scale rates rather than the ‘slab’ system.

•From 1 April 2016 an additional 3% applies on the purchase of buy to let or second homes (for values over £40,000). Exemptions apply for corporates or funds with more than 15 properties.

•Consultation expected on reducing SDLT filing and payment window from 30 to 14 days (from 2017)

£0 - £125,000 0%

£125,000 - £250,000 2%

£250,001 - £925,000 5%

£925,001 - £1,500,000

10%

£1,500,001 upwards 12%

UK Residential Property – IHT ChangeSummer Budget 2015 Proposal

From 6 April 2017 the government intends to bring all UK residential property held directly or indirectly by foreign domiciled persons into charge for IHT purposes, even when the property is owned through an indirect structure such as an offshore company or partnership.

• The changes will be the subject of a consultation document which is expected to be released this year.

• The intention is that the legislation will be contained in the 2017 Finance Act, but that measures will commence from 6 April 2017.

• Affected individuals/entities may wish to consider de-enveloping, particularly if double charges may arise.

• A specific relief for capital gains tax and stamp duty land tax on de-enveloping may be introduced.


Replacement of Domestic Items Relief

• Wear and tear allowance allows (broadly) a 10% deduction from gross rents where furnished properties are let, regardless of expenditure.

• Wear and tear allowance has been abolished with effect from 6 April 2016 for individuals and 1 April 2016 for companies.

• It has been replaced with a deduction based on costs incurred on replacing furniture, appliances and kitchenware.

• The new relief applies to part and unfurnished residential properties, in addition to furnished properties.

• The new relief will increase administration required by landlords.


Rental Properties


Finance Cost Restriction

• It was previously announced that full relief for financing costs paid in respect of let residential property will be gradually replaced with a deduction of 20% of the amount paid (higher rates of relief may currently apply where the property is owned by an individual or direct at trust level).

• In particular, this applies to mortgage interest.

• The change will be phased in from 6 April 2017, and will apply in full from 6 April 2020.

• In some circumstances, as full relief will be unavailable, the tax liability on rental income could exceed the economic profit.

Rental Properties

Contact Details

Alison Vine Tax Director 01481 703264 [email protected]


Martin PopplewellTax Director01481 [email protected]

mailto:[email protected]

mailto:[email protected]

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ICSA Guernsey Branch Tax Seminar 2016