THE FSC REPORT 2014 FSC REPORT 2014 THE PREMIER REPORT ON THE WORLD’S LEADING INTERNATIONAL FINANCIAL SERVICES CENTRES OFC_7.5mm Spine_FSC2014_Cover_v3.indd 1 28/03/2014 01:30 THE FSC REPORT 2014 INTERNATIONAL FINANCIAL SERVICE CENTRES UNITED KINGDOM Details Legislative update Contacts Population: c. 62,300,000 High Value Residential Properties As of 6 April 2013 an Annual Tax Charge (ARPT) levied on a sliding scale depending on the value of the property from £15,000 to £140,000 if residential property worth more than £2 million is owned by a non-natural person (NNP) – companies (both offshore and UK), collective investment vehicles and partnerships with one or more corporate partners. The disposal of UK residential property worth more than £2 million by a NNP will be subject to CGT at 28%. THE FINANCIAL CONDUCT AUTHORITY (FCA) Capital: London Time zone: GMT Currency: Pound sterling (GBP) Political status: Unitary parliamentary constitutional monarchy Airport: Heathrow/Gatwick/London City/Stansted/Luton Budget 2014 extended the scope of these provisions to properties worth £500,000, and in the case of stamp duty land tax at 15%, with effect from 19 March 2014. Address 25 The North Colonnade, Canary Wharf, London E14 5HS Tel: +44 20 7066 1000 Website: www.fca.org.uk HER MAJESTY’S REVENUE & CUSTOMS (HMRC) Address Personal Tax Division/Company Tax Division/International Division, Somerset House, Strand, London WC2R 1LB Tel: +44 20 7438 6622 Website: www.hmrc.gov.uk General Anti-Avoidance Rule To provide for re-characterisation of transactions that are considered abusive to counteract any tax advantages. Came into force on 17 July 2013. New Statutory Residence Test The SRT took effect from 6 April 2013 bringing in a more certain but stricter regime for people moving to and from the UK. 154 035-156_FSC2014_Section D_v25.indd 154 28/03/2014 02:05 UNITED KINGDOM The FSC Report 2014 London as a Financial Services Centre REPORT SUMMARY Taxation Tax avoidance Mansion tax? Assets Conclusion BY STEPHEN COLECLOUGH London is the world’s largest financial centre, catering not just for multinational enterprises valued in the billions, but also for the mobile international high net worth (HNW) individual. It is clear that the Ultra HNW and HNW community feel London has a great deal to offer them and their families. In 2012 London became France’s sixth biggest city in terms of French population; Belgravia is a largely Russian community, and we are increasingly seeing the wealth generators of China, India and many other countries choose London as a home from home. While native Londoners perhaps take the cultural advantages for granted, there is no shortage of theatres, film, ballet, opera or cuisine. As Dr Samuel Johnson said: “… when a man is tired of London, he is tired of life; for there is in London all that life can afford”. Additionally, there are high quality schools, colleges, and excellent transport links to the rest of the world. House prices may be high (although no higher than other leading cities), but at least EU citizens and their families have a right to immigration. A survey amongst our Ultra HNW clients revealed that wealthy migrants would be willing to invest far more into the UK economy if it resulted in the citizenship process being sped up. When asked what most attracted them to the UK, respondents overwhelmingly felt that the country’s legal system was the most important factor in their decision followed by: “security of assets”; “schooling”; “stable government”; and “language”. Litigation is a big export for the UK and of our survey respondents alone, 79% had spent up to £100,000 on professional services in the UK in the past year, with 17% having spent more than £200,000. These Ultra HNW individuals are often global entrepreneurs with multiple business ventures. The strength of the UK legal system is a crucial factor for business investment and stability and is one of the main advantages that the UK has over other countries seeking to attract these individuals. At Mishcon, we advise clients to take some sensible steps and spend time making sure their tax affairs are completed properly to help their wealth stretch much further. So, in tax terms how does London match up on the international stage? To receive your FREE copy of The FSC Report 2014 register now at www.campdenwealth.com/fsc 035-156_FSC2014_Section D_v25.indd 155 ABOUT THE AUTHOR Stephen Coleclough is a Tax Consultant in Mishcon de Reya’s Tax Group with over 30 years’ experience in tax and law. Stephen covers indirect and direct taxes and has particular expertise in the financial services, asset management and real estate sectors in the UK, EU and offshore EU. His clients tend to be private wealth backed funds or families. As President of the Chartered Institute of Taxation, Stephen speaks regularly on tax and is often quoted by both mainstream and trade media including the Financial Times and Accountancy Age 155 28/03/2014 02:05 International Financial Service Centres | United Kingdom Taxation The first time someone moves to London and becomes tax resident in the UK, they are only liable to pay tax on profits generated in the UK, or income or benefits received in the UK – on the remittance basis. Further investment in British businesses can also be made without triggering tax due to a recent change introduced in 2012, which is proving very popular. Money used to maintain an individual’s lifestyle in the UK is subject to tax unless it is funded by reserves of capital accumulated before moving to the UK. Importantly, individuals are only taxed on their income, not the income of the companies they own or trusts that they may benefit from. There are rules to tax benefits, but this is the basic starting point. In an individual’s seventh year in the UK, they become prima facie taxable on their worldwide income. But, subject to an annual fee of £30,000, the remittance basis can continue. While £30,000 is a substantial cost, the advantages and the fact that 4,600 (HMRC in 2012) people are choosing to pay this charge, suggests many find it a price worth paying to avoid being taxed on worldwide income, and for peace of mind. The £30,000 increases to £50,000 in the twelfth year. Tax avoidance Tax, or rather tax avoidance, has been front page news for the past few years. In response to this, politicians have called for a clampdown on egregious tax planning and as part of that have introduced a general anti-abuse law. However, it is clear from the accompanying guidance published with this law, that what many would regard as sensible planning for non-British people living in London is also regarded as sensible by HMRC. While our rules are complex, especially with regard to offshore trusts and benefits used or received in the UK, with care and advice they can be used fairly and to positive 156 035-156_FSC2014_Section D_v25.indd 156 effect. Certainly the net effect is not, and should not be, something that deters HNW individuals from moving to London. Mansion tax? The smaller of the coalition government parties is very keen on the idea of introducing a mansion tax. The government has rejected this for this parliament – the general election will take place in May 2015 – but as is the case with a coalition, some ground has been given first, on dwellings held by entities which can be sold (“envelopes”) and second, on dwellings owned by non-residents generally. On the latter we await a consultation document. On the former we have a new Annual Tax on Enveloped Dwellings (ATED), which is in its first year, plus an ATED related stamp duty land tax (SDLT) rate of 15% and ATED capital gains charge at a rate of 28%. These taxes apply to dwellings of £2 million or more, deemed to be “mansions”, however in reality they can be a one-bedroom flat in Knightsbridge. In the 2014 Budget, the starting point of £2 million was lowered to £500,000, hardly a mansion! These tax changes were brought in to deter the selling of companies owning dwellings to avoid SDLT. Their effect has perversely been to encourage such activity and instead to cause a conflict with traditional inheritance tax (IHT) planning so now “While our rules are complex, especially with regard to offshore trusts and benefits used or received in the UK, with care and advice they can be used fairly and to positive effect.” The FSC Report 2014 one compares the cost of insuring the residual IHT liability with ATED. In addition the rules have also changed on how debt can be offset against UK assets for IHT. All of this could suggest London is a confusing and expensive place to pay tax. However, with the right advice, this does not need to be the case, although it can indeed end up being very expensive if people do not take into account the complexity of the rules, or assume that they do not apply to them. Assets As to be expected from the world’s leading financial centre, London has a plethora of advisers offering support, with fund managers in every conceivable asset class. While it’s easy for people to accept the first advice they encounter, solutions that solve one person’s tax problem may not be applicable to somebody else. To demonstrate, we work in luxury assets, such as yachts, and someone who lives outside the EU could legitimately use temporary admission to use their yacht VAT and duty free in the South of France provided they don't charter it. However, there are conditions for this that might not apply to other individuals, or may only apply if, for example, their yacht was registered in a non-EU port. Small details like these can make a huge difference, and it is important to talk to someone who understands the conditions. Conclusion London can be very expensive in terms of tax if one does not plan ahead; the rules can be complicated and expensive if taken too lightly. However, experience suggests that with the right advice, one can enjoy the city that arguably offers everything the civilised person could wish for. Dr Johnson was chatting to Boswell before income tax was invented, but his words remain as true today as they did nearly 250 years ago. If you would like further information on products or services access www.campdenwealth.com/fsc 28/03/2014 02:05 THE FSC REPORT 2014 www.campdenwealth.com/fsc OFC_IFC_IBC_OBC FSC2014_Covers_v2.indd 4 28/03/2014 01:31
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