Offshore Structures Print
The tax treatment of offshore assets held by offshore companies, and offshore trusts are different from each other, so it may be advisable for a non-domiciled individual to review his investment structure to see whether it still fulfils its intended purpose.
There are stringent anti-avoidance provisions relating to the use of offshore trusts or companies, which are primarily directed against UK-domiciled individuals, which can impose a tax charge on the income of an offshore structure on a UK resident individual. This is generally referred to as the Transfer of Assets Abroad (“TOAA”) legislation. This is a complex area and relates to situations where, as the result of a person transferring assets abroad, either directly or through a number of associated operations, the income arising becomes payable to persons who are not resident in the UK or not domiciled here. The effect of this anti-avoidance legislation is to tax the transferor on an amount of income equal to the income arising to the overseas person.
There are a number of exceptions to the TOAA charge.
No liability arises if HMRC are satisfied that, either:
It would not be reasonable to draw the conclusion, from all the circumstances of the case, that the purpose of avoiding liability to taxation was the purpose, or one of the purposes, for which he relevant transactions or any of them were effected; or
All the relevant transactions were genuine commercial transactions and it would not be reasonable to draw the conclusion, from all the circumstances of the case, that any one or more of them was more than incidentally designed for the purpose of avoiding liability to taxation.
The EU commission had advised the UK government that the TOAA legislation contravened the freedom of establishment and movement of capital within the EU regulations, and income is not chargeable on the transferor where both Conditions A and B below are satisfied:
Condition A is: on the basis that the transaction is a genuine transaction having regard to all the circumstances and arrangements under which it is effected, a charge to UK tax under the TOAA provisions would be an unjustified and disproportionate restriction on the freedoms specified under the EU, or EEA treaties.
Condition B is: The individual satisfies HMRC that, viewed objectively, the transaction must be considered to be a genuine transaction having regard to the arrangements and other circumstances under which it is effected.
These rules also apply to a non-domiciled individual, in particular if he is not claiming the remittance basis. The non-domicile is treated as if he owns the assets personally, which means that if the asset is UK situs, tax will arise, but if it is not UK situs then the remittance basis may be claimed, but the individual may as a result have to pay the remittance basis tax charge.
From April 2017 these rules are relaxed where the non-domiciled individual is deemed domiciled in the UK under the new long term resident rules. (See Section on Long Term Residents.)