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The IBSA Podcasts
IBSA podcasts contain information from a global community of entrepreneurs and professional advisors dealing with international business structuring and regulatory compliance.
Hosted by Roy Saunders, who has over 50 years’ experience within the financial sector, these podcasts delve into enlightening conversations with a wide range of leading professionals aiming to demystify the complex world of business and provide invaluable insights to help listeners deal with various complex technical matters to best support their business and clients.
Disclaimer: We believe the information in this podcast to be correct at the time of recording. The information given is relevant at the time in line with governmental legislations. Competent counsel in the jurisdiction(s) whose laws are involved should be consulted. The podcast is made available by the IBSA for educational purposes only and to provide general information. The information should not be used or relied upon as a substitute for competent legal advice from a licensed professional in your jurisdiction.
The IBSA Podcasts
Unacceptable Labour Tax Rises for Wealthy Individuals
What if the UK’s evolving tax landscape could encourage wealthy individuals to emigrate from the UK to warmer countries (from climates to taxation)? Together with Roy Saunders, Dmitry Zapol of IFS Consultants unpacks potential UK tax changes for both domiciled and non-domiciled UK residents and navigate through the Conservative party’s proposed tax reforms and the Labour government’s planned adjustments, focusing on crucial areas like inheritance tax on foreign trust assets and the hike in capital gains tax rates. They explore the profound implications these changes might have on wealthy individuals, including the controversial 10-year tax tail on inheritance tax and the status of protected trusts. You’ll gain insights into the Labour government’s stance on business property relief and the transfer of assets abroad legislation, with a comparative eye on other countries boasting advantageous tax regimes.
In the second half of this episode, Roy and Dmitry unearth the complexities surrounding the transfer of income-generating assets abroad, drawing on historic tax rules dating back to the 1930s. They delve into the intricacies UK residents face when declaring income from foreign assets, the impact on controlled foreign companies, and the potential future policies like an exit tax for those leaving the UK. They also discuss the broader significance of understanding global business tax regimes and how the UK measures up against other countries with favourable conditions for businesses. This episode sets the stage for future conversations with international colleagues, promising deeper dives into these comparative tax advantages. Join us for a comprehensive look at the myriad factors influencing tax liability and emigration decisions in today’s UK.
This series of podcasts explores the beneficial tax regimes in Italy, Spain, Portugal, Malta, Cyprus, Switzerland, Singapore, Israel and Dubai in respect of where UK residents may wish to emigrate in light of the non-dom changes introduced by the Conservatives, and the likely tightening of these rules under the new Labour government.
Hello and welcome to this IBSA series of podcasts on considering countries to where UK residents may wish to emigrate in light of the non-don changes introduced by the Conservatives and the likely tightening of these rules under the new Labour government, including bringing foreign trust assets within inheritance tax and increasing capital gains tax rates to income tax levels, and those are particularly aiming at fund managers. My name is Roy Saunders, founder and chairman of the IBSA, the International Business Structuring Association, which is a multidisciplinary global association of entrepreneurs and their professional advisors, dedicated to sharing their expertise with each other within a great networking platform. Our current series of 15-minute podcasts will review beneficial tax regimes in Italy, spain, portugal, malta, cyprus, switzerland, singapore and Dubai. And, to start the series, I'm joined by Dimitri Zappol of IFS Consultants, an international tax advisor who's based in London and actually who's worked with me at IFS since 2011. So, dimitri, hi, hello, good morning. Could you start by running through the new Dundon rules and we can then chat about what may develop under the new Labour government.
Speaker 2:It has been since 2009, by the way, but that's beside the point. Okay, as we all know, the Tories plan is out of the window and, unfortunately, all those expectations of grace period, of the beneficial tax rates, they will no longer apply. Of course, we're hopeful that the Labour government will listen to the business community and they will introduce either some grandfathering rules or they will allow some grace period, particularly to those who come to the UK for a short period of time and who have not stayed here before. But until now, all we know is that the remittance basis will face the complete overhaul.
Speaker 1:Okay, so I mean, the Conservatives have announced the changes, but, yes, you're right, there wasn't a Finance Act, so nothing has changed. As far as non-DOMs are concerned, at the moment, I think it is likely that Labour is going to be sympathetic, let's say, to wealthy individuals who come to the UK, less so for those wealthy individuals who stay in the UK. I guess. What is your view on the inheritance tax issues as far as trusts are concerned, and people who have had trusts, who've been here for many years maybe, and who suddenly find that they might be subject to inheritance tax on the trust assets, even disregarding the uplift in value that those trust assets had back in 2017?
Speaker 2:All we know is that inheritance tax will no longer apply by reference to the domicile redeemed domicile of the set law and, in certain cases, beneficiaries. It means that, according to the rumours, if you were a UK tax resident for even one year, there could be a tax tail of up to 10 years during which you will be subject to inheritance tax on a worldwide estate. And it is well unfair that protected trusts, introduced God a few years ago now, will no longer protect the assets from the charge. But this still remains to be seen, as we don't have the full scope of the rules. There are rumours that the new rules will be published, maybe in September or October, but this is all just rumours.
Speaker 1:Yes, ok, I mean, to some extent residents in the UK may find the new laws beneficial to them, because if they leave the UK and they survive that 10-year period that you just mentioned, then they might be outside of the scope of inheritance tax, which, as domiciled individuals, they wouldn't have been.
Speaker 2:You're absolutely right, roy. I have a client who is a British citizen and he is UK domiciled and he's been out of the country for over 10 years now, and if the new rules apply, of course he will be able to settle assets on trust. He will be able to transfer his assets to his children without the worry of potential exempt transfer. But I'm just afraid this would be too good to be true. Perhaps they will introduce these exemptions for people who are not originally British domiciled, but then who knows?
Speaker 1:Yeah, who knows. I mean still on the subject of inheritance tax, and we'll get to the other taxes soon. On business property relief, do you think that the Labour government will tinker with business property relief, bearing in mind that they're trying to be sympathetic to business generally?
Speaker 2:to limit it to half a million, which on the one hand is a substantial amount, but on the other hand, of course, it does not take out all the family businesses outside the scope of the tax. Also, it's hard for me to comment on whether the AIM-listed shares should be taken out of the ambit. You could argue that this is the UK really shooting itself in the foot by strangling investments into AIM-listedless companies, but it is a bit too early to make any conclusions and okay.
Speaker 1:So now coming back to income tax and capital gains tax, um, individuals who are supposedly, under the conservative rules, resident here for just up to four years, won't be subject to tax on their foreign income. I think the Labour government have already said that they're not too keen on introducing this 50% level for 2005, 25, 26. But I mean the most countries and we'll be talking to individual specialists in each of these beneficial tax regimes that we're covering under this programme. They have seven years, six years, 10 years, 15 years. Four years is pretty low really, it's only a few years, so I think that's likely to stay. What about the transfer of assets abroad legislation, which is quite restrictive? Would you like to tell us a little bit about that and how that's likely to affect individuals who come to the UK, for example?
Speaker 2:Yes, of course, Roy. Just before I delve deeper into the transfer of assets abroad rules, I just wanted to say a few words about what to expect from tax liability when remittance basis goes. To begin with, the UK will join the absolute majority of countries which make you pay tax on the basis of your tax resident. If you're a UK tax resident, you have to pay tax on your worldwide income. But there are certain less evident but important consequences of the change.
Speaker 2:To begin with, of course, you will have to pay capital gains tax on disposals of your foreign assets capital gains tax but this is a bit counterintuitive.
Speaker 2:But you have to report disposals where the receipt exceeds just a couple of thousand pounds, which means that even if you sell an asset at a loss, you may still have to report it in your tax return. Also, you will have to report disposals such as gifts, because gifts, they are pretty much equivalent to the sale. And, of course, you have to report foreign income and gains of your companies and this is what I'm going to talk about now your companies. And this is what I'm going to talk about now. The rules that you've just mentioned, the transfer of assets abroad they're pretty much similar to controlled foreign companies rules that we have all over the world, Except if you mention to a UK tax advisor, tell me about individual CFC rules they will tell you no such rules exist, and rightly so, because they're called transfer of assets abroad. The initial idea behind the introduction was to stop people from transferring their income generating assets to persons abroad to avoid paying UK tax.
Speaker 2:As the name implies, there should be an asset, which is typically money or shares or any other income generating asset, that you transfer abroad, so it should be located overseas to a person abroad, and the person abroad is typically a company which is not resident in the UK, or an individual who is domiciled abroad, or a trust I guess as well, yes, of course.
Speaker 2:Or a trust who is domiciled abroad, or a trust, I guess as well, yes, of course. Or a trust, and the typical scenario would be a person resident in the UK and I'm omitting the word non-domiciled, domiciled on purpose, because domiciled will no longer play a role A person tax resident in the UK, or even before they become tax resident, they, for example, create an offshore company. They create it by paying £1,000 as its share capital and then finance it with that. Later, this company invests into securities in or outside the UK and earns income using the funds that the person has originally provided. Any such income that such person abroad receives will be included in such person's individual tax return. So either you declare yourself dividends annually and you pay tax on the dividends, or you pay tax on the undistributed income that such company receives. You must know that this rule is not new. This has existed, for individuals who were UK domiciles, since gosh 1930s maybe, and now, of course, all the non-doms must face the reality.
Speaker 1:Okay, so that's now you know. A lot of countries say, for example the US, if you haven't got any taxable income, you don't have to declare anything, you don't have to report it on your tax return. And the UK has been like that for many years as well. So you're now saying that we have to report sales, for example of assets, even if there's no gain on them.
Speaker 2:Yes, for individuals, yes, but also if we're talking of sale of assets by companies, there's another set of rules that we should be aware of. It does not have a flashy name, it's simply called attribution of chargeable gains of foreign companies. In essence, if you own more than 25% interest in a foreign company and 25% interest is interpreted very widely interest could be in the form of shares, preference shares holding it through your relatives, etc then you pay tax on the proportion, which is commensurate with your participation, of the capital gains that the company realizes when it sells its asset. So if you have an investment company which sells its securities, or a hotel abroad which is used as a source of revenue, then you have to pay capital gains tax in proportion to your participation in such company.
Speaker 1:So, in fact, the term controlled foreign company is actually a little bit of a misnomer, because you don't have to control that company, in other words, own more than 50% to be able to be within these rules.
Speaker 2:Well, that's exactly right, Roy, and we're often asked if I'm controlling the company because I'm the shareholder or because I'm a director. Do the CFC rules apply to me? First of all, there are no individual CFC rules, as I have just explained. Instead, there are transferable abroad rules or section 3 TCGA 1992 rules. Second, you do not necessarily control the company by shareholding. You could be considered controlling it by way of being a substantial creditor, for example.
Speaker 2:So we have to look at it much widely. By the way, the risks which such people mean they are more in the domain of the risks of making such company UK tax resident if you are centrally management and controlling the company from the UK. There's another risk that if you are acting on behalf of the company in the UK, you could create a branch or a permanent establishment, but this is perhaps a topic for a different conversation, roy.
Speaker 1:Yes, okay, I mean, obviously we're not going to know anything until the first budget of the Labour government, which is probably going to be the end of September or the beginning of October.
Speaker 1:One of the things that I'm going to conjecture with you on is whether or not they might bring in an exit tax for individuals leaving the UK, because a lot of individuals may decide that these plans that the Labour government have already announced to some extent are going to really adversely affect them financially.
Speaker 1:And although I had a call with Darren Joseph of Singapore, who said that you know so many people who go to Singapore, for example, are going there not for tax reasons, but for other non-tax reasons, which I understand, nevertheless, if tax becomes so onerous to an individual resident in the UK that they find it unacceptable to stay in the UK, then they will leave, and one of the ways of preventing them leaving to some extent is to bring in an exit tax, which exists in so many countries around the world, the US amongst them, as well as a lot of European Union nations. So I don't know what you think about the likelihood or whether you've heard anything about an exit tax being imposed, and if they do, would they bring in a step up in basis for the assets brought into the country. When a person comes into the country, gosh so hard to say.
Speaker 2:To begin with, I've not heard about any rumours to introduce exit tax, and of course, exit tax may take different forms. For example, you may be liable to tax on the difference between the acquisition value and the deemed disposal value of the assets when you leave. Or perhaps they will introduce rules a bit akin like in Ireland. If you move abroad and you sell a certain asset within, say, five years, then you have to pay capital gains tax. Or they might say that if you're moving to a high-tax country there is no exit tax, but if you're moving to a low-tax country, then exit tax will exist. It still remains to be seen. One other issue that I witnessed, at least in Germany I have a client who, upon leaving Germany to a European country, by the way had substantial crypto assets, and because he was trading in those crypto assets, he was told that he was deemed to have disposed of such trading assets, of course with a huge corresponding income tax in Germany actually. So it remains to be seen, but I've not heard such rumors.
Speaker 1:So it remains to be seen, but I've not heard such rumors. Okay, so I mean we? You know this is a premature podcast, which is why I'm limiting it to just 15 minutes or so, so that you know we don't go into too much conjecture, but as a sort of completeness, if you like, to finish this, what do you think Rachel Reeves, who's now the chancellor of the Exchequer, is going to feel towards the business community, bearing in mind that they've said that the only way that they can transform the NHS and all the other things that they have to do is through growth of the country, if they don't want to put up taxes and they've said they do not want to put up taxes on income tax, on VAT and so on but interestingly, and I wonder what you think about this they haven't said that they won't put up capital gains tax to income tax rates, and I know that this is one of the rumours that have been circulating. What is your view on that? Do you think that's likely?
Speaker 2:I have heard these rumors a lot about aligning the tax rates but to be fair, I don't think capital gains tax forms such a significant part of the annual revenue, nor does inheritance tax. I think a lot of taxes come in the form of income tax and also VAT. Of course. There have been rumors of not raising the VAT.
Speaker 2:But as far as I remember, you've always been the proponent of raising VAT or perhaps imposing it on luxury goods. Equally, I don't think they can raise the corporation tax because it's pretty much aligned with the rates in the other VCD countries. In fact it is not as high as in other countries. So where they will take the other revenue, I really do not know Whether they will make it easier to conduct business in the UK. To be fair, it's easy compared to many other European countries. I don't think there's much bureaucracy here as in other places, so I'm as stumped as you are, to be honest.
Speaker 1:So really coming back to my conversation with Darren about Singapore, it is perhaps not just taxes as you just alluded to. It is actually how to do business, if you like, how to make a life in the UK. So maybe the people who are already here, unless Labour go swingingly into increasing taxes adversely for these individuals, they probably won't leave. But we will see. Let's see what you think.
Speaker 2:I think one step in the right direction was taken was it last week where they introduced super voting rules to align the UK with the US, to promote listing of foreign companies in the UK, because recently we've seen quite a lot of groups going public abroad and just recently I spoke to a client who was considering listing in New York and he was dead against listing his business in the UK, so perhaps the change will lie in this domain.
Speaker 1:Okay, well, that's really interesting and I think we should relegate tax to some extent to where the box that it is in, compared to all the other boxes that are required to do business in the UK. But thank you very much. That's a really interesting start to our series of podcasts colleagues in the various countries that I've alluded to before who have beneficial tax regimes, and see whether or not they are as attractive as the UK is for doing business in those countries. So thank you very much, dmitry, it's been terrific speaking to you again. I'm sure we'll do this on a regular basis and thanks for joining me. You very much for it.
Speaker 2:Have a good day, goodbye.