Benoît d’Angelin, a non-domiciled investment banker originally from France and currently residing in Italy, has lost his appeal against a £675,000 tax bill in the UK. Despite legal advice that his £1.5 million investment in his UK company, d’Angelin & Co, would qualify for business investment relief, HMRC deemed his use of director loans for personal expenses as a breach of tax provisions.

Case Background:

– In 2016, d’Angelin, a UK resident but not domiciled, invested £1.5 million of his foreign income into his UK company, intending to benefit from business investment relief.

– He used a director’s loan account for £75,000 in personal expenses, including private jet hire, a 79p iTunes subscription, and gifts for his wife.

HMRC’s Position:

– HMRC argued that these personal expenses violated the “remittance basis” provisions of the Income Tax Act 2007.

– Consequently, the entire £1.5 million investment was deemed taxable, leading to a £675,000 tax bill.

Legal Proceedings:

– A closure notice was issued in June 2022, and d’Angelin appealed in November 2022.

– A penalty assessment of £101,295 for late payment of 2018/19 taxes was issued but later cancelled by HMRC due to an error.

Arguments and Judgment:

– d’Angelin’s representative, Michael Firth KC, contended that the extraction of value rule should refer to net value, and that the director’s loan was a standard business practice.

– HMRC maintained that any personal expense covered by the company constitutes a breach.

– Tribunal judge Christopher McNall agreed with HMRC, emphasizing that the purpose of the rule is to restrict foreign income usage strictly.

Conclusion:

– The tribunal concluded that d’Angelin’s actions were exactly what the extraction of value rule aims to prevent, leading to the loss of relief.

– The appeal was dismissed, leaving d’Angelin liable for the full £675,000 tax bill.

d’Angelin’s belief that his method was standard within his industry was acknowledged but ultimately insufficient to overturn the decision. Despite being advised of potential risks by his legal advisors, the tribunal found no grounds to exempt him from the tax liability.

Following the General Election, Labour now have a majority government with over 400 seats. There has been much speculation in recent months, since the spring Budget back in March, regarding potential changes in taxation.

Rachel Reeves, the new chancellor, is expected to announce the date of her first Budget by the end of July. Given the preparation time required and notice for the Office of Budget Responsibility (OBR) it is likely that the Budget would not be before October 2024.

Labour, so far, have ruled out Income Tax, National Insurance and VAT increases, however are expected to keep income tax thresholds frozen until April 2028. There has been no commitment to keeping capital gains taxes at the current level.

At the last Budget, the Conservatives outlined their proposals for Non-Dom and Inheritance Tax Reform – please see the following links for our coverage on this and the Labour comments:

UK Government Non-Dom Reform

UK Non-Dom Reform – Election Update

There are other updates expected which will impact: Corporation Taxes (Labour has promised to cap this at 25%), Stamp Duty Land Tax (SDLT) for non-UK residents, along with a tightening of the tax rules for carried interest arrangements and potentially removing the VAT exemption for private school fees.

We will be closely monitoring any developments and will provide updates accordingly.

Please reach out to your usual Frontier contact if you would like to discuss how the above may impact your affairs.

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Considering Renouncing Your US Citizenship?

The UK will be heading to the polls on 4 July 2024 as the Government announced the early General Election. There are many who have been closely monitoring the situation for updates on the potential tax implications particularly for non-domiciled individuals.

Following the Budget back in March – please see the following link for our initial summary of the Conservatives announced changes due to come into force from 5 April 2025.

UK Government Non-Dom Reform

Labour issued a response to these changes back in April – the main differences in stance are as follows:

• Consider incentives for new arrivers to invest in the UK
• Want to adapt the plans for the transitional relief
• Not implement the 50% discount on foreign income remitted during 2025/26
• Not allow grandfathering of excluded property trusts set up before 6 April 2025

The comments from Labour are useful to obtain a sense of the intentions, however with no technical explanation the brief statement does not provide full clarity. Specifically regarding the treatment of excluded property trusts set up pre-April 2025, this would be very challenging to achieve through legislation given the complexities that arise with offshore settlements.

The impact of the early General Election is there will not be any draft legislation published this summer as originally expected and the consultation on the proposed inheritance tax changes will also be delayed.

At this stage, both the Conservatives and Labour have committed to non-dom reform in one version or another which means we can be fairly confident that there will be upcoming changes. Providing there is a clear majority in the election we will know which version is likely to be implemented; the uncertainty lies in the timing and effective date.

Once the Government session resumes, the main possibilities are as follows:

• An Autumn Budget is announced and will confirm the reforms – although this would leave the Government very little time to prepare draft legislation and the planned IHT consultation.
• The changes will be confirmed in a Spring Budget for 2025.
• The changes may be postponed for longer whilst legislation is drafted and consultations undertaken.

If history has any lessons, it cannot be guaranteed that either party would implement the changes in full as announced, however it would be prudent to assume this will be the case until the position is clear.

Should you wish to discuss the potential impact for your affairs please do reach out to your usual Frontier contact and we will be happy to discuss this with you

We bring to your attention the latest warning from the Internal Revenue Service (IRS) regarding fake charities and tax-related identity fraud. This advisory is part of the ongoing “Dirty Dozen” tax scams series, emphasizing the importance of vigilance and caution, particularly during times of natural disasters and tragic events.

Key Points:

1. Scammers often exploit tragic events by posing as charitable organizations to solicit donations. They may also seek sensitive personal and financial information under the guise of charity work.
2. Taxpayers should be aware that deductions for charitable donations are only valid when directed towards IRS-recognized tax-exempt organizations. Utilizing the Tax-Exempt Organization Search (TEOS) tool on IRS.gov can help verify the legitimacy of charities.
3. Tactics employed by scammers may include email phishing, spoofed caller IDs, and targeting vulnerable groups such as seniors and individuals with limited English proficiency.

How to Protect Yourself:

1. Refrain from making payments under pressure and avoid charities that request gift card numbers or wire transfers.
2. Verify the legitimacy of any charity before making donations and avoid sharing excessive personal information.
3. Report abusive tax practices and incorrect tax filings by using the online Form 14242 or submitting a completed paper Form 14242 to the IRS Lead Development Center.

It’s crucial to remain vigilant and informed about potential scams, especially those targeting charitable giving and tax-related identity fraud. By following the IRS guidelines and exercising caution, we can collectively combat fraudulent activities and protect ourselves and our communities.

State taxes can be confusing for US expats that are living abroad. Many will ask ‘Do I need to pay State taxes even though I am living abroad? The answer to this, unfortunately, is not black and white.

Each US State has different rules as to who qualifies as a state resident and what type of income would be taxable in that State. Some States have no income tax charges, such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Other States will have varying rules and if you have any affiliation to these States, such as you lived there before moving abroad, you have some workdays there, or you own a property there, it is important to understand the rules and check how they may apply to you.

For example, in some States if you are considered domiciled in the state, you could still be liable to State taxes even though you are not physically present there. In some States you could be liable to State taxes by travelling to and working within the State, even if this is just a few days. This would include remote working from a home you may still maintain within the State. If you are unsure if any of the State income tax rules will apply to you, please contact our team and they will be happy to assist you.

Last week we saw millions of Americans rushing to file their taxes before the April 15th deadline. New surveys have found that nearly one-third of U.S. expats have plans to renounce their American citizenship due to the extra filings rules which are subsequently making some expats question their citizenship.

Between 2023 to 2024, the percentage of expats renouncing their citizenship rose from 20% to 30% due to the burden of managing and filing their U.S. taxes.

It has been proven difficult to many Americans living outside of the U.S. due to the strict filing requirements whereby income taxes must be paid on all sources of worldwide earnings. Although there may be some leeway in avoiding double-taxation by applying foreign tax credits as well as claiming a foreign income exclusion, expats may spend more money and time to file taxes in two counties every year.

The Report of Foreign Bank and Financial Accounts (FBAR) may be another factor that encourages expats to renounce their US citizenship. Expats will need to file FBAR forms if their combined account values of their non-US bank accounts exceed $10,000 any time during the tax year – failing to report this can trigger a hefty penalty.

Many have called for the taxing regime to be streamlined and simplified, therefore, easier to navigate and keep up with their tax filings – this would minimise the stress caused to expats and would make tax filing more manageable. This option would be more practical to navigate as opposed to completely renouncing their citizenship as this cannot be easily reversed.

Please contact our team for more information

In this article, we delve into the significant announcements made in the UK’s Spring Budget 2024 and their direct impact on the real estate sector. Our focus is on dissecting these developments to provide valuable insights for real estate professionals and investors navigating the evolving landscape of UK property markets.

1. Reserved Investor Funds (RIFs):

The government has introduced Reserved Investor Funds (RIFs), a new tax-transparent unauthorised vehicle aimed at enhancing the UK’s funds regime. RIFs are expected to be particularly attractive for investment in commercial real estate. The Finance (No 2) Bill 2024 will define RIFs and outline their tax treatment. RIFs will be subject to Stamp Duty Land Tax (SDLT) as companies.

1. Replacing Tax Rules for Non-UK Domiciliaries:

The Chancellor announced a significant reform of the UK’s regime for taxing non-domiciliaries. The remittance basis of taxation will be replaced with a simpler residence-based regime effective from 6 April 2025. New arrivals to the UK opting into the regime will enjoy a four-year grace period of tax exemption on foreign income and gains.

1. Changes to Anti-Avoidance Legislation: Transfer of Assets Abroad Provisions:

Legislation will be introduced to partially reverse a Supreme Court decision, ensuring that anti-avoidance rules apply to certain indirect transfers of assets abroad by UK resident individuals through companies. These changes will take effect from 6 April 2024.

1. . Stamp Duty Land Tax — Abolishing Multiple Dwellings Relief (MDR):

The Spring Finance Bill 2024 will abolish Multiple Dwellings Relief (MDR) for SDLT, effective from 1 June 2024. MDR allows bulk purchase relief for two or more dwellings in a single transaction. However, it will still apply to contracts exchanged on or before 6 March 2024.

These updates are crucial for real estate investors and professionals operating in the UK market. Stay informed to navigate the evolving landscape effectively.

The 2024 UK Budget was obviously more politically focused considering the upcoming General Election. The reforms to domicile, remittance basis and inheritance tax are due to be implemented from 6 April 2025 which would be following the outcome of the General Election – which adds uncertainty for the final rules.

At this stage the draft legislative changes are yet to be published. It is therefore important to note that there will likely be further amendments/changes to the planned reforms following the General Election and legislative review process before these are implemented in April 2025.

Announcement and UK Treasury documents:

The current plans as per the Budget announcement and Treasury technical note for implementation as of 6 April 2025 are as follows:

1. The UK will move away from the historic principle of domicile and move to a residency-based system of taxation.
2. The remittance basis of taxation will be abolished.
3. A new 4-year relief from taxation of non-UK income will become available for individuals that become UK resident after a period of non-residency of at least 10 years.
4. Overseas Workday Relief (OWR) will be retained with some modifications which would allow claimants to remit the non-UK employment income without charge.
5. Trust protections for settlor interested trust structures will no longer be available in respect of income and capital gains tax.
6. Inheritance Tax will also move to a residency-based system.

Transitional relief:

The following transitional reliefs have been documented in the Treasury technical note:

1. Temporary Repatriation Facility – the intention is to allow a reduced rate of 12% tax on remittances of non-UK and gains arising before 6 April 2025 in the next two tax year [2025-26 and 2026-27].
2. For individuals that move from the remittance basis of taxation to worldwide basis at 6 April 2025 there is planned to be a relief applying for the 2025-26 tax year only. The proposal is that for people in this position they will receive a deduction of 50% of their foreign income for tax purposes. Note that capital gains are not currently included in this relie
3. Capital Gains Tax Rebasing – For people that have claimed the remittance basis in the past and are not UK domiciled or deemed domiciled at 5 April 2025 there will be rebasing available for capital gains tax purposes. The rebasing date is planned to be 5 April 2019.

Inheritance Tax:

It is important to note that the announced inheritance tax changes, already subject to the General Election outcome and legislative drafting, are also subject to a separate IHT consultation before the planned implementation on 6 April 2025.

The current announced changes are as follows:

1. The concept of domicile will be abolished and replaced with a residency-based system.
2. Individuals would become subject to UK inheritance tax on their worldwide assets after being resident in the UK for 10 years.
3. Once an individual becomes subject to UK inheritance tax on their worldwide assets, they will remain in the scope of UK inheritance tax for 10 years after they become non-UK resident – known as the “tail” provision.
4. It is understood that UK situs assets will remain in charge of UK inheritance tax regardless of residency.
5. The Treasury technical note states that non-UK property settled by a non-domiciled individual before 6 April 2025 into trust will continue to receive inheritance tax protection going forward. However, it important to note that if the trust is settlor interested the income and capital gains protections will no longer apply and will therefore be allocated to the UK resident settlor.
6. The tax treatment of new trusts settled after 6 April 2025 will be subject to the proposed consultation.

Some individuals may consider trust planning ahead of the planned changes depending on their circumstances to lock in IHT protection. However, this should be carefully reviewed due to the planned changes to settlor interested trust protections.

Following the UK Budget and the various announcements regarding Non-Doms and the remittance basis, please see below our summary on the various items as it currently stands:

Firstly, it is important to note that this Budget was obviously more politically focused considering the upcoming General Election. The reforms to domicile, remittance basis and inheritance tax are due to be implemented from 6 April 2025 which would be following the outcome of the General Election.

At this stage there is only the Budget announcement and the UK Treasury technical note to rely on – the draft legislative changes are yet to be published. It is therefore important to note that there will likely be further amendments/changes to the planned reforms following the General Election and legislative review process before these are implemented in April 2025.

Announcement and UK Treasury documents:

The current plans as per the Budget announcement and Treasury technical note for implementation as of 6 April 2025 are as follows:

• The UK will move away from the historic principle of domicile and move to a residency-based system of taxation.

• The remittance basis of taxation will be abolished.

• A new 4-year relief from taxation of non-UK income will become available for individuals that become UK resident after a period of non-residency of at least 10 years.

• Overseas Workday Relief (OWR) will be retained with some modifications which would allow claimants to remit the non-UK employment income without charge.

• Trust protections for settlor interested trust structures will no longer be available in respect of income and capital gains tax.

• Inheritance Tax will also move to a residency-based system.

Transitional relief:

The following transitional reliefs have been documented in the Treasury technical note:

• Temporary Repatriation Facility – the intention is to allow a reduced rate of 12% tax on remittances of non-UK and gains arising before 6 April 2025 in the next two tax year [2025-26 and 2026-27].

• For individuals that move from the remittance basis of taxation to worldwide basis at 6 April 2025 there is planned to be a relief applying for the 2025-26 tax year only. The proposal is that for people in this position they will receive a deduction of 50% of their foreign income for tax purposes. Note that capital gains are not currently included in this relief.

• Capital Gains Tax Rebasing – For people that have claimed the remittance basis in the past and are not UK domiciled or deemed domiciled at 5 April 2025 there will be rebasing available for capital gains tax purposes. The rebasing date is planned to be 5 April 2019.

Inheritance Tax

It is important to note that the announced inheritance tax changes, already subject to the General Election outcome and legislative drafting, are also subject to a separate IHT consultation before the planned implementation on 6 April 2025.

The current announced changes are as follows:

• The concept of domicile will be abolished and replaced with a residency-based system.

• Individuals would become subject to UK inheritance tax on their worldwide assets after being resident in the UK for 10 years.

• Once an individual becomes subject to UK inheritance tax on their worldwide assets, they will remain in the scope of UK inheritance tax for 10 years after they become non-UK resident – known as the “tail” provision.

• It is understood that UK situs assets will remain in charge of UK inheritance tax regardless of residency.

• The Treasury technical note states that non-UK property settled by a non-domiciled individual before 6 April 2025 into trust will continue to receive inheritance tax protection going forward. However, it important to note that if the trust is settlor interested the income and capital gains protections will no longer apply and will therefore be allocated to the UK resident settlor.

• The tax treatment of new trusts settled after 6 April 2025 will be subject to the proposed consultation.

At this time the situation is very fluid and subject to revisions/clarifications, we will continue to closely monitor any new information as it becomes available and will provide updates as appropriate.

Should you wish to discuss the potential impact for your affairs please do reach out to your usual Frontier contact and we will be happy to discuss this with you.