Alison Vine, Tax Director, Deloitte offers a practical and concise update on all the latest tax and NIC developments, topical tax issues, planning you will need to be aware of, and the impact of these changes on your clients and your business.

1. ICSA Guernsey
Branch
Stay Ahead of the
Game in Tax
Annual Tax Update
2016
Alison Vine
17 May 2016

2. • Tax Transparency
− FATCA Recap
− CRS
• Building up the heat – tax scrutiny
− UK corporate criminal offence of failure to prevent the facilitation of tax evasion
− UK civil sanctions for enablers of offshore evasion
• Reform of UK domicile rules
− Formerly domiciled residents
− Long- term UK residents
• Taxation of UK property –
− ATED changes from 2016
− SDLT changes from 2016
− Proposed IHT changes from 2017
− Rental property changes
ICSA Tax update 2016
Agenda

3. FATCA Recap
ICSA Tax update 2016

4. FATCA Overview
Relevant Timings
Notes
• 1 – 30 June 2015 – classification of pre-existing individual high value accounts completed
• 2 – 30 June 2016 – classification of all other pre-existing accounts
• 3 – 30 June 2015 – 2014 US FATCA reporting
• 4 – 30 June 2016 – 2015 US FATCA reporting, 2014 and 2015 UK FATCA Reporting
Workstream 2014 2015 2016
Phase1
Classification of internal entities
Classification of client entities
Implement new onboarding procedures
Strategy, communications and governance
Registration of FIs with IRS
Phase
2
Customer classification and due diligence
Reporting
30 June 2014 (31 Dec 2014 for
entities under US FATCA)
22 Dec 2014 in an IGA jurisdiction
1 2
3 4
ICSA Tax update 2016

5. FATCA – the current agenda as of May 2016
• Finalising reportable account populations
• XML solutions
• Reporting portal logistics
• Client communications (Increase in customer awareness)
• Consideration of FATCA as a process
ICSA Tax update 2016

6. CRS
ICSA Tax update 2016

7. The Regulatory Timeline
CRS is being implemented on a very short timeframe and is
replacing UK FATCA
CRS
US
FATCA
Go live: 01/07/14
UK
FATCA
2014 2015 2016 2017
June
Annual Reporting
Taken over by CRS on 01/01/16
Go live: 01/01/16
ICSA Tax update 2016

8. CRS in the Crown Dependencies
• For FATCA we saw largely common guidance notes produced across the Crown
Dependencies.
• For CRS, the islands are producing separate guidance.
• Both Jersey and Guernsey released their CRS guidance notes in December
2015. Jersey released a second draft in February 2016, and IOM issued their
CRS guidance in March 2016.
• There is a difference at a policy level between the guidance. Jersey are
adopting an approach such that the existing FATCA guidance can continue to be
applied for CRS (provided it does not frustrate the purpose of the agreement).
• The Guernsey approach is to broadly follow the extensive OECD materials
rather than the existing local FATCA guidance.
ICSA Tax update 2016

9. Building up the Heat
ICSA Tax update 2016

10. Building up the Heat
In advance of UK and global reporting through CRS a number of measures are
being put in place to:
• Facilitate last minute reporting of undisclosed offshore accounts/ investments
etc
• Impose criminal and civil penalties in the UK for the facilitation of offshore
evasion
• Register people with significant control of UK companies (from June 2016)
• Register ultimate beneficial ownership as the legal owner of UK land ( from
June 2016)
• Facilitate government to government sharing of information on beneficial
ownership with central register of beneficial control ( 2017)
ICSA Tax update 2016

11. Consultation issued on 16 July 2015
On same day 3 more consultations issued, all in respect of ‘Tackling Offshore tax evasion’:
• Civil sanctions for enablers of offshore evasion
• Strengthening civil deterrents for offshore evaders
• A new criminal offence for offshore evaders (further consultation after first one in August
2014)
Foreword in each explains how large amount of information will become available to HMRC
under UK FATCA and CRS. ‘HMRC has given people ample opportunity to regularise
their affairs. In advance of HMRC receiving this new data there will be one last chance
for evaders to come forward and put their affairs in order’.
All consultations closed on 8 October 2015.
Draft legislation was included with the Summary of Responses published in December 2015.
Further consultation issued 17 April 2016 concerning the specific legislation and guidance
required. Closing date 10 July 2016.
A New Corporate Criminal Offence of Failure to
Prevent the Facilitation of Evasion

12. A New Corporate Criminal Offence of Failure to
Prevent the Facilitation of Evasion
Government plans to introduce a new criminal offence which is committed when a
corporation fails to prevent their agent from criminally facilitating tax evasion and the
corporation cannot show that it took reasonable steps to prevent this.
Stated aim is to ensure
‘that corporations foster a positive corporate culture of compliance and put in place systems
to prevent, detect and report criminal facilitation of tax evasion by their agents’.
Corporates are normally charged in the UK through the ‘identification doctrine’ or ‘directing
mind theory’.
The employees who HMRC believe fall into the directing mind category are:
The board of directors, the managing directors ‘and perhaps the senior officers of a
company who carry out functions of management and speak and act as the company’.

13. A New Corporate Criminal Offence of Failure to
Prevent the Facilitation of Evasion
The offence will apply to evasion of UK
• Income tax
• Capital gains tax
• Inheritance tax
• VAT
Actions which will be regarded as facilitation of offences may include:
• Acting as a broker/conduit
• Providing planning and advice
• Delivery of infrastructure
• Maintenance of infrastructure
• Financial assistance

14. A New Corporate Criminal Offence of Failure to
Prevent the Facilitation of Evasion
Before a corporate criminal liability can be considered it has to be proved, beyond
reasonable doubt,:
• An individual has committed tax evasion, and
• That individual has been deliberately aided and abetted in the tax evasion by an agent of
the corporate, and
• The corporation failed to take reasonable steps to prevent this.
Where the corporate can demonstrate that it has, on the balance of probabilities, put in place
‘reasonable procedures’ (per Bribery Act) to prevent its agents facilitating tax evasion then it
has no case to answer.
In considering what reasonable procedures might be, these may include:
• compliance with any applicable published guidance,
• contractual terms for staff
• training provided to staff,
• steps taken to monitor and ensure compliance.

15. • UK government recognised it was difficult to tackle the problem of enablers
using criminal powers alone.
• The civil sanctions will complement the criminal powers.
• The civil penalty will be linked to the amount of tax which the enabler helped
the evader to evade.
• Current suggestion appears to be a maximum penalty of 100% of the tax
evaded, with this being reduced based on
• The sanctions will also include naming provisions.
Civil Sanctions for Enablers of Offshore Evasion

16. Reform of UK Domicile Rules
ICSA Tax update 2016

17. Introduction
Two key announcements in Summer 2015 Budget:
From April 2017:
1. Those who have a strong connection with the UK having a domicile of origin
at birth should not be able to access the remittance basis regime if they return
and become UK resident here, even if they have lost that UK domicile as a
matter of law (‘Formerly Domiciled Residents’).
2. Those who have been resident in the UK for “more than 15 out of the past 20
tax years” will be treated as deemed UK domiciled for all tax purposes (‘Long-
term UK residents’).
A consultation document in respect of these points was issued on 30 September
2015 with responses requested by 11 November 2015.
It was expected legislation would be included in Finance Act 2016, however, there
is nothing in the Finance Bill.
© 2016 Deloitte LLP. All rights reserved.ICSA Tax update 2016

18. Formerly Domiciled Residents
• Formerly domiciled residents are UK resident individuals who were born in
the UK and have a UK domicile of origin.
• Individuals in this category will be taxable on their worldwide income and
gains from the point when they become UK resident.
• For IHT purposes their estates will be subject to charge on worldwide assets.
• The consultation document proposed a grace period for IHT purposes only,
such that individuals will only be deemed domiciled for IHT if they have been UK
resident in one of the two preceding tax years.
• Excluded property trusts will be brought into the relevant property regime (ie
treated as made by a UK domiciled), so trustees will have IHT reporting
obligations. There is likely to be no grandfathering. As a result an affected trust
may be subject to IHT for events on or after 6 April 2017 with a grace period
only in respect of the residence rule.
© 2016 Deloitte LLP. All rights reserved.ICSA Tax update 2016

19. Long-Term UK Residents
• Individuals who are resident in at least 15 of the previous 20 tax years will be deemed to
be UK domiciled for all tax purposes.
• If deemed domiciled:
o UK income and gains taxable as they arise – no change
o No remittance basis for foreign income and gains.
o Worldwide assets within scope of IHT.
• Per Budget 2016, a rebasing of assets at 5 April 2017 will apply if become deemed
domiciled on 6 April 2017, but details and the extent to which rebasing will apply is unclear.
• Deemed domicile applies even if non-UK resident in year 16.
• Could be deemed domiciled after being UK resident for 13 full tax years and two part tax
years.
• May need to be non-UK resident for 6 whole tax years to break deemed domicile.
• Remittance basis still available pre-deemed domicile, but remittance basis income/gains
taxable if remitted later.
• Grandfathering may apply for those who “left” before the Summer 2015 Budget (8 July
2015).
© 2016 Deloitte LLP. All rights reserved.ICSA Tax update 2016

20. All Deemed UK Doms
Assets held through Offshore Company
Company
• UK income received by company may be taxable on
shareholder (no change)
• UK gains made by company may be taxable on shareholder
when they arise if own >25% shares
• Foreign income and gains may be taxable on the same
basis under UK anti-avoidance provisions as they arise
• Value of shares may be rebased to 5 April 2017 value if
become deemed domiciled on 6 April 2017 under long-term
UK resident rule
• The value of the shares will be part of the individual’s estate
for IHT
• Offshore companies still provide protection for non-UK
residents and UK resident non-doms to hold UK assets,
except UK residential property.
© 2016 Deloitte LLP. All rights reserved.ICSA Tax update 2016

21. Taxation of UK Property
ICSA Tax update 2016

22. Residential Property
Changes Since 2012
April 2013
20 March
2014
4 Dec 2014 April 2015
•ATED and
ATED-
related CGT
introduced
for
residential
properties
worth >
£2m;
•15% SDLT
for ATED
properties
(from 21
March 2012)
April 2016
6 April
2017
•15% SDLT
for ATED
properties
worth more
than £500k
•SDLT rates
become
progressive
(but not for
15% rate)
•ATED
threshold
lowered to
£1m.
•ATED
charges
increased by
50%
•NRCGT
introduced.
•LBTT
replaces
SDLT in
Scotland
•ATED
threshold
lowered to
£500k
•Higher rates
of SDLT
(extra 3%)
for
purchases
(for more
than
£40,000) of
buy to let or
second
homes
•Look-through
of opaque
structures for
IHT purposes
•SDLT filing and
payment
deadlines may
reduce from 30
to 14 days
ICSA Tax update 2016

23. Annual Tax on Enveloped Dwellings (ATED)
2016 Changes
• From 1 April 2016 the charge applies to dwellings worth £500k to £1m too.
• The charge for 2016/17 was £3,500.
• Return and payment for 2016/17 were due by 30 April 2016.
• The valuation date is 1 April 2012 or later (if purchased after that date). Next
valuation date 1 April 2017.
• The same rules apply to this category as to the £2m+ charges already in
place.
• Residential properties which fall within ATED, worth £500k or above,
purchased after 20 March 2014 by an ‘envelope’, will be subject to the
higher rate of SDLT of 15%.
• From 1 April 2016 reliefs (from ATED and 15% SDLT) extended to equity
release schemes, property development activities and properties occupied
by employees.

24. SDLT
Recent Changes
•From 4 December 2014 SDLT on the purchase of residential property only will be
calculated based on scale rates rather than the ‘slab’ system.
•From 1 April 2016 an additional 3% applies on the purchase of buy to let or second homes
(for values over £40,000). Exemptions apply for corporates or funds with more than 15
properties.
•Consultation expected on reducing SDLT filing and payment window from 30 to 14 days
(from 2017)
£0 - £125,000 0%
£125,000 - £250,000 2%
£250,001 - £925,000 5%
£925,001 -
£1,500,000
10%
£1,500,001 upwards 12%

25. UK Residential Property – IHT Change
Summer Budget 2015 Proposal
From 6 April 2017 the government intends to bring all UK residential property held
directly or indirectly by foreign domiciled persons into charge for IHT purposes,
even when the property is owned through an indirect structure such as an offshore
company or partnership.
• The changes will be the subject of a consultation document which is expected to
be released this year.
• The intention is that the legislation will be contained in the 2017 Finance Act, but
that measures will commence from 6 April 2017.
• Affected individuals/entities may wish to consider de-enveloping, particularly if
double charges may arise.
• A specific relief for capital gains tax and stamp duty land tax on de-enveloping
may be introduced.
ICSA Tax update 2016

26. Replacement of Domestic Items Relief
• Wear and tear allowance allows (broadly) a 10% deduction from gross rents
where furnished properties are let, regardless of expenditure.
• Wear and tear allowance has been abolished with effect from 6 April 2016 for
individuals and 1 April 2016 for companies.
• It has been replaced with a deduction based on costs incurred on replacing
furniture, appliances and kitchenware.
• The new relief applies to part and unfurnished residential properties, in
addition to furnished properties.
• The new relief will increase administration required by landlords.
ICSA Tax update 2016
Rental Properties

27. Finance Cost Restriction
• It was previously announced that full relief for financing costs paid in respect of
let residential property will be gradually replaced with a deduction of 20% of the
amount paid (higher rates of relief may currently apply where the property is
owned by an individual or direct at trust level).
• In particular, this applies to mortgage interest.
• The change will be phased in from 6 April 2017, and will apply in full from 6
April 2020.
• In some circumstances, as full relief will be unavailable, the tax liability on
rental income could exceed the economic profit.
ICSA Tax update 2016
Rental Properties

28. Contact Details
Alison Vine
Tax Director
01481 703264
avine@deloitte.co.uk
ICSA Tax update 2016
Martin Popplewell
Tax Director
01481 703229
mjpopplewell@deloitte.co.uk

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© 2016 Deloitte LLP. All rights reserved.
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