Dear Advisor, I am an ord res non dom living in the UK 18 years. I am shortly investing in a start-up UK incorporated limited liability company (reg at Companies House). My shareholding will be 25%. The investment is largely passive at first, but I have an advisory role supporting the company. It has 6 or so employees at start. My question is this - is there any point in me setting up an offshore company to make the start-up investment, such that the offshore company (say BVI) can make a capital gain in the future, and I can claim remittance basis at some point. Basically, is there a way I can avoid UK CGT on the investment?I thank you in advance for your time and consideration,Regards, Peter
System of Law: England-and-Wales
Im happy to answer your question. Please give me some few minutes to get back with the wording.
Usually the biggest tax advantage to be gained by investing through an offshore company is the absence of any CGT charge on persons not resident in the UK. Therefore i just need to clarify whether you are resident &/ domiciled in UK for tax purposes - i know you did say you that you are res non dom?? When an offshore company makes a capital gain, it is not itself liable to any UK tax on that gain - say the Offshore company is in Isle of Man where there is no capital gains. However generally that does not mean that the gain goes untaxed; - this is a trick which HMRC spotted and dealt with a long time ago. Any UK shareholders (individuals, companies, or trustees) with a shareholding of over 10% have a percentage of the gain attributed to them (normally the same as the percentage shareholding), and they are taxed as if their part of the gain had accrued to them (i.e you are taxed as if the structure did not exist). This is one of the main weapons in HMRC’s armory against the offshore company. From April 2008, most people living long-term in the UK with foreign income are liable to tax on worldwide income and gains ie HMRC will tax you on that total income/gains as if the legal structures you have put in place was not in existence. In practice, the remittance basis only now applies in certain limited cases which are discussed below. There a number of legislation that will make it difficult for you to avoid the tax on total income/gains including the anti-avoidance legislation (known as the "transfer of assets abroad" provisions) which again calls for your income to be taxed on income & gains irrespective of the legal structures you put in place. In addition, given the current government’s increased drive to ensure tax anti-avoidance, this is the likely outcome.However if you are not a UK domiciliary as you said, you can choose to have your non-UK income and gains taxed in the UK only to the extent that they are brought into or enjoyed in the UK hence you only taxed on the ‘remitted’ income and gains but an annual £30,000 or £50,000 remittance basis charge may also be due in certain situations. Depending on your expected gains this may be worthwhile but the rules have been changing for the past few years and are likely to keep changing and 2012/13 remittance limits see http://www.hmrc.gov.uk/international/remittance.htmHowever i need to find a bit of more about BVI/Offshore company structure from you as one of the conditions to take remittance basis is that you need to demonstrate that company is managed and controlled offshore. The importance of the managed and controlled test is that if a company is incorporated outside the UK, it can still be liable to UK tax if it is managed and controlled in the UK. HMRC’s statement of practice sets out some of the “practical guidelines” that in general will help demonstrate to HMRC that a company is not resident in the UK for tax purposes. While these guidelines deal with the practical issues it is important to mention that these principles rest on the fact that “the directors shown be seen to be controlling the company from offshore".
I hope this clarifies your question. Im happy to clarify any further points. Im also available for any other tax matters that may not be related to this. If you are satisfied, a positive feedback would be greatly appreciated. Thanks
Chartered Accountant >20 years + Qualified IFA