Where foreign income or gains are “used” in respect of a loan which is brought to the UK (known as a “relevant debt”), the foreign income or gains are themselves remitted to the UK and a tax charge will arise.

Since 2014, HMRC has taken the position that this is the case when foreign income or gains are used as security for a relevant debt. Crucially, the collateral does not need to actually be called in to satisfy the terms of the loan; if it is “used” to “agree the terms of the loan” HMRC will consider this sufficient, and a remittance will occur.

There are three principal changes:

1. Foreign income and gains not offered as formal security can potentially be remitted

HMRC’s view is that if the loan or the repayment terms are “conditional” on the availability of the foreign income or gains, they consider the foreign income or gains have been “used” in respect of the debt and there will be a taxable remittance.

This gives rise to the potentially worrying scenario where a client may have taken a loan from a bank without offering any formal security over foreign income and gains, however HMRC will argue that there has been an effective remittance.

2. Additional amount remitted when the collateral itself generates income and gains

HMRC also seems to take the position that future income and gains accruing on the assets held as security (for example, if the collateral is a cash account and interest is received, or if the collateral is an investment portfolio and it generates profits) will also be treated as remitted as they arise if they are held in the account over which the bank has security.

3. No cap on the amount that can be remitted

Perhaps an even more concerning change of position by HMRC is that the guidance has now been amended to clearly state that where the amount of the foreign income and gains used as security for a relevant debt exceeds the amount of the loan, if the full amount of the loan is brought to the UK the amount of the collateral treated as remitted is not capped at the amount of the loan. HMRC previously took the opposite view.

Take an example where a remittance basis user has secured a £1m loan to purchase a property in the UK and has offered his £3m offshore portfolio in Switzerland as collateral for the loan. If he then uses the entire £1m loan in the UK, HMRC’s position is that £3m of the offshore income and gains offered as collateral would be remitted to the UK.

If you have such an arrangement in place this will need to reviewed.

Last Friday, 25th June, we joined in sponsoring a LondonSports charity softball event, with other sponsors including Blick Rothenberg, Buzzacott, EY Frank Hirth, LGT Vestra US, London & Capital, MASECO Private Wealth and US Tax & Financial Services. There were more than 100 players partaking on the day in a 12 team tournament that raised significant funds for the charity.

Founded in 1986, LondonSports is the UK’s largest and longest established youth baseball and softball league and has registered and trained over 15,000 children to play baseball and softball in over 12,000 games. Their goal is to give every player a chance to learn about the sport, improve their skills and develop self-confidence and self-esteem, with a strong focus on the importance of teamwork and good sportsmanship.

As a non-profit organisation, LondonSports relies heavily on sponsorship so that the league is equally accessible for everyone, allowing boys and girls aged 5 to 17 the opportunity to learn to play baseball and softball in a safe and fun environment. This is the 3rd annual tournament and we look forward to participating again next year to continue to support in raising vital funds to aid the great work that the charity has been doing since 1986.

The LondonSports youth season runs from April to mid-June and if you know of any friends, family or colleagues who would be interested in playing softball or baseball at LondonSports then please find below a link to their website with all the information that you would need for next season – https://www.londonsports.com/page/about_us.html.

On 30^th March 2021, HMRC published its first crypto assets manual. A point to be noted is that this manual expands on and also replaces previous guidance provided.

Due to the success of the first decentralised cryptocurrency, Bitcoin (released 2009), whose market capitalisation increased from approximately $6.5 billion to $1 trillion in the last 5 years, the crypto assets manual provides a much-needed update of HMRC guidance as the market expands.

HMRC has confirmed in its crypto assets’ manual that:

• Most individual investors in crypto assets and cryptocurrencies will be subject to Capital Gains Tax (CGT) on gains and losses.
• Section 104 pooling applies for individuals, subject to the 30-day rule for ‘bed and breakfasting’. Different pooling rules apply for businesses.
• It will be rare to regard investing in crypto assets as trading, although ‘mining’ is likely to indicate a trading activity.
• Other tax treatments rather than trading or investment may need to be considered by companies such as loan relationships and the intangibles rules.
• A capital loss may be claimed in the event that a crypto asset becomes of negligible value. Evidence of any loss will need to be proved if the loss of the asset arises as a result of the accidental destruction of a private encryption key or fraud.
• Exchange tokens such as Bitcoin are located for tax purposes wherever the beneficial owner is resident.
• VAT may need to be considered.
• HMRC does not consider crypto assets to be currency or money.

Furthermore, we can also highlight some key principles from the manual for businesses:

• Trading:

• The use of cryptocurrencies as a form of exchange (i.e. exchange tokens) is permissible in the course of trade, therefore this may lead to a rise in corporation or income tax liability.

• For tax filing purposes, the value of the gain/loss will need to be converted into pound sterling in order to prepare a tax return.

• Chargeable gains:

• HMRC categorises exchange tokens as chargeable assets due to their capability of being owned and having a value that can be realised.

• A taxpayer holding crypto currency exchange tokens as an investment will be considered liable to pay CGT or corporation tax on any gains upon disposal.

• Employment tax:

• Employees receiving crypto assets as earnings are liable to income tax and NICs on the sterling value of the assets received.

• VAT:

• Businesses supplying goods and services in exchange for crypto assets are liable to account to HMRC for VAT for the sterling value of the exchange tokens at the point the transaction takes place.

• Stamp taxes:

• Stamp duty is defined as a tax that is charged on instruments that transfer “stocks or marketable securities” and HMRC’s view is that exchange tokens are unlikely to meet the definition of “stock or marketable securities”.

Transactions that involve cryptocurrency cannot be taxed in the same method as transactions made in sterling or an alternative foreign currency as HMRC does not consider cryptocurrency assets as money/currency.

Hence, it is essential that general principles are applied in order to establish whether a gain or loss has been made.

If you would like further advice on this matter, please contact one of our advisers.

Frontier Fiscal Services

The Internal Revenue Service (IRS) has extended the tax filing for individual tax returns for the 2020 tax year to MAY 17, 2021.

Please note key points below:

• First-quarter estimated tax payments for 2021 and corporation tax returns are still due on APRIL 15, 2021
• In response to the Federal Government’s deadline extensions for federal income tax filings and payments, many states are now extending deadlines for income, sales/use, property and/or other taxes. However not all have announced extensions yet.

The Tax Cuts and Jobs Act of 2017 brought in an increase to the lifetime exemption which is currently at $11.7 million per person for 2021. This exemption amounts are scheduled to sunset at the end of 2025, however under the Biden administration the change may come a lot sooner. We could see the exemption go back to pre-2018 levels of $5.5 million, but potentially could even be much lower at $3.5 million per person.

The main question here should these proposed changes come into place is, will they be retroactive? As the exemption works as a tax credit against estate and gift tax rather than an exemption this is likely to be the case, and the changes could come into place this year. It therefore important to discuss any potential gifts made in 2021 and what the possible changes could mean for you. There are ways to potentially mitigate the risk should the retroactive legislation come into force such as QTIP marital trust which allows you to make a Qualified Terminable Interest Property election at a later date if necessary, or setting up a trust with a formula allocation clause. This type of tax planning can be complicated and it is good to understand the impact of all options before making any decisions.

As part of the American Rescue Plan Act, signed into law on 11th March 2021, part of it’s aim towards individuals is to provide a $1,400 refundable tax credit to individuals ($2,800 for joint filers) with up to $75,000 in adjusted gross income (or $112,500 for heads of household and $150,000 for married couples filing jointly). It also provides $1,400 for dependents (both child and non-child).

As with most credits, there is a phase out threshold and those with incomes above $80,000 (or $120,000 for heads of household and $160,000 for married couples filing jointly) will find that the credit is phased out entirely.

However, for income between $75,000 and $80,000 (or $112,500 and $120,000 for heads of household and $150,000 and $160,000 for married couples filing jointly), the credit is reduced.

The credit will be paid out in advance like the Economic Impact Payments previously provided under the CARES Act and the COVID-related Tax Relief Act.

For this purpose, the IRS will use the most recent adjusted gross income in its system (2020 or 2019). If an individual qualifies for a larger payment using 2021 income, the difference will be claimed as a credit on the individual’s 2021 return itself.

The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023 when the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate

A common form of estate planning in the US is for an individual to create and fund a Revocable Trust (sometimes referred to as a Living Trust or a Living Will). However, structures of this nature can be problematic for anyone with connections to the UK.

US Revocable Trusts are popular in the US because they represent a relatively simple means of avoiding probate following death. Typically, the Grantor (i.e. the Settlor) will have a right to all income together with a right to access capital on request. The Grantor will have significant retained powers (such as a power of revocation) and will often be the sole trustee during his or her lifetime. The terms of the Trust then set out how assets should devolve following the Settlor’s death. The structure is entirely tax neutral for US purposes with the assets being taxed as if they belong to the Settlor directly.

For individuals with connections to the UK, the analysis is not so straightforward. Significant UK Inheritance tax (IHT) complications can arise if:

• The Grantor is domiciled in the UK because any assets they contribute into a lifetime trust may incur an immediate 20% entry charge to IHT followed by ten year anniversary charges to IHT at rates of up to 6%(subject to available nil rate band allowance)
• The Grantor is not domiciled in the UK but contributes UK situated assets to their Revocable Trust as there may be a 20% entry charge to IHT on the value of those UK assets followed by ten year anniversary charges at rates of up to 6% (subject to available nil rate band allowances).

For those that have already set up Revocable Trust structures, all is not lost. Depending on the specific drafting it may be possible to argue that a Revocable Trust should be treated for UK purposes as a ‘bare trust’ or ‘nominee arrangement’. A crucial distinction exists because bare trusts and nominee arrangements are not within the relevant property regime, with the result that the adverse IHT implications referred to above are avoided. Essentially, we may be able to argue that there is not a taxable trust for UK purposes.

Therefore, If you have such an arrangement which has not been reviewed for UK tax purposes, we would advise a review be undertaken.

New Stamp Duty Land Tax (SDLT) rates for non-UK resident purchases of residential property will come into effect on or after 1 April 2021, this applies to both freehold and leasehold transactions which are completed in England and Northern Ireland.

The surcharge will apply to buyers who are non-UK resident individuals. The 2% surcharge will apply to a non-resident transaction. A transaction is a non-resident transaction if the purchaser is, or (if there is more than one purchaser) the purchasers include a person who is non-resident. Therefore, in the case of joint purchasers (other than spouses or civil partners, see below), if one of the purchasers is UK resident and one is non-resident, the transaction will be considered a non-resident transaction. The draft legislation contains tests to determine whether a person is UK resident or not UK resident for the purposes of the transaction. There are different tests for individuals, companies and trustees.

The additional 2% of tax will apply as a surcharge to the various standard SDLT rates, i.e. i) the standard rates for residential transactions; ii) the higher rates for the purchase of additional dwellings; iii) the 15% flat rate for high value residential transactions by companies; and iv) the rates for first time buyers that qualify for relief. This means that the top rate of SDLT will be 17% from 1 April 2021 and the calculation of the SDLT due a residential property purchase is set to become even more complicated than it is at present. The rules will not apply where the purchase is for less than £40,000, or, in the case of leasehold transactions, where the lease has 21 years or less to run or the purchased interest is reversionary on a lease that has more than 21 years to run.

IRS EXTENDS INDIVIDUAL TAX FILING TO MAY 17, 2021

The Internal Revenue Service (IRS) has extended the tax filing for individual tax returns for the 2020 tax year to MAY 17, 2021.

Please note key points below:

• First-quarter estimated tax payments for 2021 and corporation tax returns are still due on APRIL 15, 2021
• In response to the Federal Government’s deadline extensions for federal income tax filings and payments, many states are now extending deadlines for income, sales/use, property and/or other taxes. However not all have announced extensions yet.

However, it would be much appreciated if you could provide your tax information to us as early as possible in order to file your tax return in a timely manner and ahead of the extended deadline.

We look forward to hearing from you soon.