For international individuals, the chancellor’s Autumn Statement was very much a dog that did not bark. Amongst UK resident foreign domiciliaries there was widespread concern that, under pressure from the Labour Party, the chancellor would announce radical reform of the remittance basis rules, or even their abolition. But at the despatch box, the chancellor made no mention of non-doms; and of the proposals for legislative changes released by the Treasury/HMRC, there are few that will have much impact on foreign domiciliaries.
There was one rather ‘niche’ change announced within the Statement which, in principle, will affect remittance basis users (RBUs). The CGT rules on share for share exchanges are to be amended, with effect from 17 November, to counter what HMRC sees as avoidance through the use of non-UK incorporated holding companies. The share-for-share exchange rules allow an individual who holds shares in a company to sell those shares to another company (‘HoldCo’), in exchange for shares in HoldCo, on the basis that any gain realised on that sale will effectively be held over and not realised until the individual sells his or her shares in HoldCo. In theory, under current law an RBU can exploit these rules to transfer shares in a UK incorporated company to a non-UK incorporated holding company, avoiding the immediate realisation of any gain on the disposal of the UK shares. This could be highly beneficial, as a gain realised on an eventual sale of the individual’s shares in the non-UK HoldCo would, if he or she is still an RBU at the time, qualify for the remittance basis, i.e. would only be taxed if the proceeds were brought into the UK. In contrast, an RBU cannot realise a gain on a sale of shares in a UK incorporated company without an immediate charge to CGT.
The share-for-share exchange rules are to be amended to preclude any CGT advantage for RBUs from this kind of restructuring. This will operate by deeming non-UK situated shares that are held following such an exchange to be UK situated, where the shares originally held were UK situated. Accordingly, a gain realised on a disposal of shares in a non-UK HoldCo, where this deeming applies, won’t qualify for the remittance basis.
Interestingly, the deeming will also apply for income tax purposes, so that if a dividend paid by the non-UK incorporated HoldCo would otherwise qualify as foreign income in the hands of the individual, it won’t so qualify. This means that where the deeming applies, a dividend paid by the non-UK HoldCo will immediately be subject to income tax for the individual, even if the non-UK HoldCo paying the dividend is non-UK resident.
For various reasons, the practical impact of this amendment is likely to be very slight. However, the change may be useful politically, as a means for the government to show that some action is being taken (however minor) to ensure that UK resident foreign domiciliaries pay their fair share of the overall tax burden.
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Autumn Statement 2022: impact on foreign domiciliaries
The dog that didn't bark.
For international individuals, the chancellor’s Autumn Statement was very much a dog that did not bark. Amongst UK resident foreign domiciliaries there was widespread concern that, under pressure from the Labour Party, the chancellor would announce radical reform of the remittance basis rules, or even their abolition. But at the despatch box, the chancellor made no mention of non-doms; and of the proposals for legislative changes released by the Treasury/HMRC, there are few that will have much impact on foreign domiciliaries.
There was one rather ‘niche’ change announced within the Statement which, in principle, will affect remittance basis users (RBUs). The CGT rules on share for share exchanges are to be amended, with effect from 17 November, to counter what HMRC sees as avoidance through the use of non-UK incorporated holding companies. The share-for-share exchange rules allow an individual who holds shares in a company to sell those shares to another company (‘HoldCo’), in exchange for shares in HoldCo, on the basis that any gain realised on that sale will effectively be held over and not realised until the individual sells his or her shares in HoldCo. In theory, under current law an RBU can exploit these rules to transfer shares in a UK incorporated company to a non-UK incorporated holding company, avoiding the immediate realisation of any gain on the disposal of the UK shares. This could be highly beneficial, as a gain realised on an eventual sale of the individual’s shares in the non-UK HoldCo would, if he or she is still an RBU at the time, qualify for the remittance basis, i.e. would only be taxed if the proceeds were brought into the UK. In contrast, an RBU cannot realise a gain on a sale of shares in a UK incorporated company without an immediate charge to CGT.
The share-for-share exchange rules are to be amended to preclude any CGT advantage for RBUs from this kind of restructuring. This will operate by deeming non-UK situated shares that are held following such an exchange to be UK situated, where the shares originally held were UK situated. Accordingly, a gain realised on a disposal of shares in a non-UK HoldCo, where this deeming applies, won’t qualify for the remittance basis.
Interestingly, the deeming will also apply for income tax purposes, so that if a dividend paid by the non-UK incorporated HoldCo would otherwise qualify as foreign income in the hands of the individual, it won’t so qualify. This means that where the deeming applies, a dividend paid by the non-UK HoldCo will immediately be subject to income tax for the individual, even if the non-UK HoldCo paying the dividend is non-UK resident.
For various reasons, the practical impact of this amendment is likely to be very slight. However, the change may be useful politically, as a means for the government to show that some action is being taken (however minor) to ensure that UK resident foreign domiciliaries pay their fair share of the overall tax burden.
