Non Domiciled Tax Planning – Moving on from Bearer Warrant Schemes
Update Spring 2014 – The Court of Appeal has found in favour of the accountants confirming that they did not act negligently on the basis that Harben Barker were not “under any duty to advise the claimant of significant tax advantages which, to their reasonable knowledge, did not exist”.
Update Summer 2013- case of Hossein Mehjoo v Harben Barker to be appealed. See our recent blog for more information http://pdtaxconsultants.wordpress.com/2013/06/24/hossein-mehjoo-v-harben-barker-negligence-appeal/
Original Article – Hossein Mehjoo v Harben Barker & the Bearer Warrant Scheme
In the recent case of Hossein Mehjoo v Harben Barker, the High Court found that an accountant that failed to make his client aware that his non-domicile tax status could haven given rise to tax planning not available to an ordinary domiciled taxpayer was guilty of negligence (see http://pdtaxconsultants.wordpress.com/2013/06/07/hossein-mehjoo-tax-planning-advice-negligence/ for more detail).
The case focused on the Bearer Warrant Scheme (BWS) which was widely marketed at the time.
In brief, the premise of BWS was that shares in a UK company were converted into bearer warrants which were treated as being situated in the country in which they were physically present. The non-domiciled taxpayer could then visit an offshore jurisdiction, such as Jersey, and gift the bearer warrants to an offshore trust set up by the taxpayer. The gain on a subsequent disposal would therefore arise to the non resident trustees and not the taxpayer thus saving significant amounts of capital gains tax.
Following changes introduced by HMRC in March 2005, BWS is no longer utilised as a tax planning opportunity for non-doms because bearer warrants issued by a UK company are treated as being located in the UK and not the compamy in which they are physically situated http://www.hmrc.gov.uk/manuals/cgmanual/cg12440.htm
Current Non Domicile Tax Planning
There are numerous differences between the tax treatment of UK domiciled and non UK domiciled taxpayers, thus giving rise to non-dom tax planning opportunities in terms of not only capital gains tax but also income tax and inheritance tax.
With any form of tax planning, it is important to consider the particular circumstances of the taxpayer including tax, legal and commercial considerations. Therefore one size fits all schemes are unlikely to be appropriate in the majority of cases.
Current tax planning opportunities available for non-doms depend on factors such as the taxpayers residence status, length of residence, current asset portfolio/asset structure and will need to be considered in light of the remittance basis rules and new statutory residence test as well as anti avoidance provisions.