TAX ISSUES Mid-Year Tax Round-up What follows is somewhat different to the type of tax article you might expect to find in “American in Britain”. The editor understands that most readers are only interested in being presented with a limited amount of tax content. Furthermore, that material should be precise in its presentation and seen to have direct relevance to the everyday affairs of the readership. Unless there is a really ‘hot topic’ which everyone is asking questions about, articles concerning tax will normally appear late in the year and combine some year-end planning ideas with a general review of developments over the previous 12 months. However, because we are presently living in ‘interesting times’, the editor thought a mid-year review to be appropriate. Writing the present piece within the editor’s precision guidelines on tax content has involved a novel challenge. Considering the ongoing tax environment for US citizens and US ‘green card’ holders living and working in the UK bears a startling resemblance to playing musical chairs, but with the added challenge of having the lights turned off. You know where the chairs were located when it went dark, but have no certainty as to what you will see when it becomes light again. Even how long the light switch will remain in the ‘off’ position is a matter for speculation.
Remittance Basis Taxation In The UK
The Path We Thought We Were On In the UK, a major change to the taxation of individuals not domiciled in the UK (non-doms) was announced in the 2015 Budget presented by George Osborne. For two categories of nondoms, the remittance basis of taxation would no longer be available. This change was to take effect in April 2017, but would be legislated in two tranches. A consultation in 2015 on the ‘easier’ aspects would lead to draft legislation for inclusion in Finance Bill 2016. A second consultation on the more difficult stuff would be launched in early 2016, leading to draft legislation to be included in Finance Bill 2017. This was always an ambitious timetable given the inherent complexities of making the change. In the meantime, no significant change was expected to the way the US taxes its citizens and residents working abroad. Even without the gridlock on tax matters which has gripped Capitol Hill for some time, there was no sign of any real push to change the way that the US taxes Americans overseas. Things Start To Go Off Course The first indication that the UK was suffering a timetabling difficulty came in January 2016. A consultation document on the second tranche 14
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of proposed changes failed to materialise. It finally appeared in mid-August. The Referendum On EU Membership The referendum had two impacts on the Cameron government’s non-dom project. Firstly, there was a period of ‘purdah’ ahead of the referendum itself. If the second nondom consultation document was not released to the public prior to the purdah curtain coming down, then, even if ready, it could not be published until after the referendum vote had taken place. No consultation document emerged pre-purdah. In the wake of the referendum vote for Brexit, along came a new spanner in the works. George Osborne is no longer either Chancellor, or to be found anywhere in government! Rightly or wrongly, the non-dom project had always been seen as bearing his personal stamp. In the Treasury team, David Gauke had been the minister with responsibility for taxation matters for the past six years. He has now been promoted, which leaves the non-dom project in the hands of both a new Chancellor and a new ‘Taxation Minister’. Unsurprisingly, the priority of both is to get to grips with their new briefs rather than simply let what was in the pipeline proceed on autopilot. So, albeit on a smaller scale, there was a ‘pause for thought’ similar to that on the proposed Hinkley Point nuclear power station. When the long delayed consultation document finally appeared, it posed many new questions. We are currently in the midst of a new period of formal consultation in which The Treasury is actively seeking input on how to frame workable legislation. The results of this exercise will not see the light of day until draft legislation is published about a week after the Chancellor’s Autumn Statement on 23 November 2016. However, there was one really welcome piece of news in the consultation document. There is to be an one-off opportunity to clean up offshore ‘mixed funds’. Taking advantage of that one chance to put matters in order will enable any currently ‘trapped’ non-taxable constituent to be brought into the UK. A full discussion of mixed funds is beyond the scope of this article. If you think you might currently have nontaxable money ‘trapped’ offshore, you should speak to your UK tax adviser. As A Non-Dom, What Should I Do? There will be a major change to the UK tax landscape in April 2017. You need to be thinking about that now and are definitely in the ‘too dangerous to delay’ category if you are a non-dom, currently claiming the remittance basis of taxation, and either:
• You were born in the UK with a UK domicile of origin, or • As at 6 April 2017, you will have been resident in the UK for 15 or more of the previous 20 tax years. The remittance basis taxation will no longer be available to you after 5 April 2017. If you have not already done so, you should be speaking to your UK tax adviser now. You need to make use of all the time that is available in order to thoroughly discuss what planning might be appropriate, and then to implement any course of action agreed with your tax adviser. For anyone in either category who is not already treated as having a deemed domicile in the UK for Inheritance Tax (IHT) purposes, the conversation with your UK tax adviser needs to cover IHT planning as well.
Other UK Uncertainties Quite apart from the non-dom changes which may affect some of them, participants in the funds industry also have to come to terms with new rules that have brought a major change to the tax topography which impacts them. Unfortunately, affected individuals find themselves in a similar situation to sailors trying to navigate home waters in the aftermath of a major storm. In the latter situation, it might be common knowledge that the storm shifted a major sandbank. However, even for those who think they know its new location, that sandbank represents a hazard until such time as its new co-ordinates have been accurately charted. A seemingly unrelenting wind of change has presented the funds industry with a series of UK tax changes. Although these are all enshrined in legislation, the situation is not as straightforward as that of the sailor looking at his new chart of the sandbank. Some of the tax changes interact with one another, meaning that there is not a straightforward generic ‘answer’. Additionally, there are areas where the bare bones of what is complex legislation need to be augmented with formal guidance from Her Majesty’s Revenue & Customs (HMRC). In the absence of straightforward ‘generic’ answers, individuals working in the funds industry need to evaluate with their tax adviser how their own situations play out in this new tax landscape. Once again, this process should start as soon as possible.
Do You Receive UK Tax Relief On Pension Plan Contributions? A US expatriate working in the UK might receive UK tax relief on pension plan contributions in a