I have found that HNW/UHNW individuals relocating to the UK continues to be a strong theme, particularly from emerging economies. That said, interestingly, I have noticed that there is a broader range of reasons why families are relocating: from entrepreneurial families looking to explore business opportunities to access to early years education for children to setting up UK family offices. I am also increasingly identifying instances where individuals may have triggered tax residency without intending to do so. In those instances, I seek to help regularise the past whilst being mindful of opportunities available to them where they are not UK domiciled.
If you could make one change to tax...
Quite specifically, the mismatch of tax credits between jurisdictions. There are some specific situations in relation to overseas trusts and the taxation of capital distributions to UK resident beneficiaries which can be particularly punitive. The trust gains accruing to trustees may meet the double tax agreement requirements; however, the TCGA 1992s 87 gain accruing to the beneficiary is not the same gain as the trust gains. ITA 2007 s 731 similarly is a tax charge on ‘income treated as arising to an individual’; it may be regarded as a charge on ‘fictional income’ and not on the actual trust income. Unfortunately, where the trust has suffered tax in a mature taxing jurisdiction on the same source income and gains, this can create a mismatch in terms of access to a foreign tax credit. This can leave individuals vulnerable to a form of double taxation in relation to the same source income and gains, but restructuring can solve some of the issues.
What do you know now that you wish you’d known at the start of your career?
My recommendation: enjoy the time you get with the legislation and research from the start of your career!
Are there any new rules that are causing a problem?
From 2013 to 2017, significant amounts of legislation were introduced which encouraged individuals to de-envelope residential properties from corporate and/or trust structures. It seems clear that it was the objective of several governments to, in their own words, level the playing field as it relates to the taxation position and rectify a perceived unfairness. Unfortunately, HMRC’s published guidance on the application of FA 2003s 75A (in particular, the updated guidance at SDLTM09420) and their unwillingness to offer a clear interpretation of how this anti-avoidance legislation may operate in the majority of typical de-enveloping transactions is a problem. This often prevents individuals from taking steps to restructure. I am mindful that SDLT avoidance continues to be a problem and s 75A is a powerful tool in managing this tax risk; however, it is clear that properly considered guidance is required to assist taxpayers meet the objective that successive Parliaments have sought (i.e. bringing personal use residential property in to the individual’s name or held directly by a trust).
Has a recent tax case caught your eye?
The recent domicile cases of Henkes [2020] UKFTT 159, Coller [2023] UKFTT 212 and Shah [2023] UKFTT 539 show that the multifactoral approach is now being relied on. HMRC appear more confident making domicile challenges as a result.
What should we look out for this year?
It would be remiss of me not to speak of the elephant in the room: a looming election with the very real possibility of a Labour government which has pledged to rework the non-domicile regime. In my opinion, a whole scale removal of the system without an appropriate replacement and substantial grandfathering provisions for offshore trusts could result in economic loss created by capital flight.
You might not know this about me but...
I absolutely love a dance floor. This started with choreography of Bollywood dances when I was nine, but the love of dance has never left me and it continues to be one of my favourite things to do!
I have found that HNW/UHNW individuals relocating to the UK continues to be a strong theme, particularly from emerging economies. That said, interestingly, I have noticed that there is a broader range of reasons why families are relocating: from entrepreneurial families looking to explore business opportunities to access to early years education for children to setting up UK family offices. I am also increasingly identifying instances where individuals may have triggered tax residency without intending to do so. In those instances, I seek to help regularise the past whilst being mindful of opportunities available to them where they are not UK domiciled.
If you could make one change to tax...
Quite specifically, the mismatch of tax credits between jurisdictions. There are some specific situations in relation to overseas trusts and the taxation of capital distributions to UK resident beneficiaries which can be particularly punitive. The trust gains accruing to trustees may meet the double tax agreement requirements; however, the TCGA 1992s 87 gain accruing to the beneficiary is not the same gain as the trust gains. ITA 2007 s 731 similarly is a tax charge on ‘income treated as arising to an individual’; it may be regarded as a charge on ‘fictional income’ and not on the actual trust income. Unfortunately, where the trust has suffered tax in a mature taxing jurisdiction on the same source income and gains, this can create a mismatch in terms of access to a foreign tax credit. This can leave individuals vulnerable to a form of double taxation in relation to the same source income and gains, but restructuring can solve some of the issues.
What do you know now that you wish you’d known at the start of your career?
My recommendation: enjoy the time you get with the legislation and research from the start of your career!
Are there any new rules that are causing a problem?
From 2013 to 2017, significant amounts of legislation were introduced which encouraged individuals to de-envelope residential properties from corporate and/or trust structures. It seems clear that it was the objective of several governments to, in their own words, level the playing field as it relates to the taxation position and rectify a perceived unfairness. Unfortunately, HMRC’s published guidance on the application of FA 2003s 75A (in particular, the updated guidance at SDLTM09420) and their unwillingness to offer a clear interpretation of how this anti-avoidance legislation may operate in the majority of typical de-enveloping transactions is a problem. This often prevents individuals from taking steps to restructure. I am mindful that SDLT avoidance continues to be a problem and s 75A is a powerful tool in managing this tax risk; however, it is clear that properly considered guidance is required to assist taxpayers meet the objective that successive Parliaments have sought (i.e. bringing personal use residential property in to the individual’s name or held directly by a trust).
Has a recent tax case caught your eye?
The recent domicile cases of Henkes [2020] UKFTT 159, Coller [2023] UKFTT 212 and Shah [2023] UKFTT 539 show that the multifactoral approach is now being relied on. HMRC appear more confident making domicile challenges as a result.
What should we look out for this year?
It would be remiss of me not to speak of the elephant in the room: a looming election with the very real possibility of a Labour government which has pledged to rework the non-domicile regime. In my opinion, a whole scale removal of the system without an appropriate replacement and substantial grandfathering provisions for offshore trusts could result in economic loss created by capital flight.
You might not know this about me but...
I absolutely love a dance floor. This started with choreography of Bollywood dances when I was nine, but the love of dance has never left me and it continues to be one of my favourite things to do!
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