You are the beloved daughter of the dictator of Freedonia. You have oodles of cash, investments, real estate etc etc, all of which you earned through your legitimate occupation as a podiatrist. You aren’t taxed in Freedonia (because local tax inspectors generally take the view that taxing the dictator’s daughter is not compatible with their continued good health).
As we approach 2023, you’re thinking about moving to London. Yes, Daddy says it’s a decadent imperialist hell-hole, but the schools are awfully good, the Bottega Veneta salon top notch, and the chance of being executed for treason pleasingly low.
You engage a top team of private client tax advisers and give them a short set of instructions: you are arriving in the UK on 6 April 2023 and won’t be returning home any time soon. You want to spend lots of money in the UK, pay zero tax in the UK, and declare none of your assets to HMRC.
You expect this will be very hard indeed, and so are most surprised to find that the solution fits on a postcard.
This is what it says:
- You should continue to own a large and gaudy estate in Freedonia, and write an Important Note documenting the fact that you intend to spend a few years in London and then return home. This is a huge fib; but absent HMRC employing a team of psychics, they have no chance of disproving it. Ta da: you’re a non-dom.
- Next, open a bank account in Honduras (which maintains strict bank secrecy and doesn’t share account information with other countries).
- Before 6 April 2023, make sure you put a modest amount of money into the account, enough to fund your lifestyle for a few years – say $1bn.
- The new bank account has one unusual feature – any interest earned on the account is paid into your normal account (on some other tropical island).
- You then move to London on 6 April 2023. Make sure all your expenses are paid from the Honduras account. Never use any other account for UK spending.
- $1bn isn’t what it used to be. What if you start to run out of money in the Honduras account? You ask someone to make you a gift, straight into that account. Where does the gift come from? Who cares! (HMRC might, but they probably won’t even find out about it.)
Mission accomplished. You can now spend lots of money in the UK, but you’ll pay zero UK tax. Your tax return will show none of your foreign income or assets.
How can this be? Poor Dania had a horribly complex tax treatment when she remitted a modest amount of money to the UK from Germany. Why don’t you have an even worse time?
Because non-doms are only taxed when they remit funds/assets to the UK. This is often abbreviated to “bringing funds into the UK” but that’s wrong – bringing stuff into the UK is only a remittance if it derives from foreign income and gains after the point someone becomes UK tax resident. The Honduras bank account is, in the jargon, a “clean” account – because everything in it derives from before the time you became UK tax resident. Gifts are also “clean”, even if made after you become UK tax resident. So you can bring in what you like and there’s no remittance, and you pay no UK tax.
- You’d declare any taxable remittances – but you don’t make any.
- And you’d declare any UK income and gains – but you don’t have any.
Literally all HMRC know about you is that you’re a non-dom. HMRC can’t tell you – with your $1bn of liquid assets – apart from poor Dania.
All good things come to an end, and after seven years you will have to start paying the £30,000 charge to continue to use the remittance basis, and after twelve years, £60,000. A pretty sweet deal. After fifteen years you should lose the remittance basis entirely… but there are ways round that (I’ll discuss in a future post).
So:
- The non-dom regime is of little or no use to normal people, in part because of its complexity, and in part because it turns off the allowances that shield middle class people from tax on modest investment income and gains.
- The non-dom regime is a simply fantastic amount of use to the very wealthy, who with a little effort can live in the UK without paying any tax. If you have a huge amount of offshore cash, it isn’t even very complicated.
What should we do about this? That’s my next post.
Tiresome caveat: none of this is legal advice. Anyone stupid enough to plan their tax affairs on this basis deserves everything they get. Any oligarchs reading this and looking for tax advice should go to this well respected independent adviser.
10 responses to “How to avoid UK tax if you’re an oligarch”
keep’m coming!
Soonish…
Great post, Dan. So when are we going to read the next blog post, referred to in
— “What should we do about this? That’s my next post.”
?
When the “top team of private client tax advisers” are partners of an international law firm then the non-dom rules can be good for them too!
Things will typically be structured so that partners only pay NIC on (say) 1% of their profit share (whether or not they are domiciled in the UK). In addition, the non-dom partners are also likely to pay UK income tax on 1% of their profit share, with the remaining 99% only taxed if remitted to the UK. Quite nice really.
And some law firms also likely to structure their UK partnership so that the anti-avoidance rules (that can tax their partners as employees) don’t apply. Which is quite helpful really.
I have to say I don’t understand how non-dom partners can do this. The law firm carries on a trade/profession partly in the UK, so the income arises in the UK and won’t be relevant foreign income. They should be fully taxed on it. Or am I missing something?
Hello Dan,
I think that you are missing (1) the way that these firms are structured, and (2) the way that profits are allocated to the partners.
To illustrate this, I’ve created a simplistic example:
1. The law firm operates in the US and England. Its profits for the year are £100m.
2. Technically, there are actually two firms: a US firm that is regulated in the US, a UK firm regulated by the SRA. It’s split like this for regulatory reasons.
3. There are (say) 100 partner (“US partners”) who work day-to-day for the US firm and (say) 3 partners who work day-to-day for the UK firm (“UK partners”). The actual numbers don’t matter.
4. The UK firm’s profits are (say) £1m and the profits of the US firm are (say) £99m.
5. All the partners are partners in each firm. So the UK partners are also partners in the US firm and the US partners are partners in the UK firm. Historically, the US partners were often partners in the UK firm through a bare trust (nowadays its more likely to be via a company owned by the US firm– let’s ignore the mixed partnership rules here).
6. A UK partner is to be paid £5m.
7. The UK firm allocated £50,000 of profits to the UK partner and the US firm allocates £4,950,000 and the partner draws these.
The profit share from the UK firm are taxed in the normal way.
By virtue of s857 ITTOIA, the profit share from the US firm would be eligible for the remittance basis. This ignores the reality that the UK partner would not work for the UK firm for just £50,000.
Another interesting factor is that, for US tax purposes, some of the payments made to the UK partners would typically be “guaranteed payments” (https://www.irs.gov/publications/p541). I struggle to see how these could ever be taxed on the remittance basis (with all the anti-avoidance legislation we have).
From a class 4 NIC perspective, the profits allocated by UK firm would be earnings in the normal way. The profits allocated by the US firm would not be subject to class 4 NIC if the profession of the US firm was carried on “wholly outside the United Kingdom” (s15(1) SSCBA 1992).
So the question then is whether the US firm’s profession is (1) carried on wholly in the US, or (2) whether it is actually carried on partly in the UK? If a UK partner thinks about this question (yeah, right) then the answer might be something like: “No, it doesn’t work at all in the UK as it is not regulated in the UK”.
This might ignore lots of things like:
– the firm’s global management board meets in the UK at least once a year (well, you just have to do your Christmas shopping in London),
– ten employees of the US firm are seconded full-time to the UK firm (with UK firm being recharged the salary costs),
– employees of the US firm ,and US partners ,charged 3,000 hours of time while being in the UK to US clients (e.g. in relation to deposition in the US clients),
– US partners regularly meeting clients and potential clients in the UK, and
– while in the UK, the UK partners supervise staff of the US firm (e.g. a UK partner regularly providing feedback / career counselling, etc to employees of the US firm).
From a salaried members perspective, the UK firm would be a Delaware LLP and so, HMRC say, the rules don’t apply. I’ve never understood why. And I certainly don’t think that this is a fair position.
Wow. I hope HMRC are aware of these games. Seem extremely vulnerable to challenge…
It depends how it’s structured. There may be separate LLPs for the UK activities and foreign activities, with the latter being “wholly abroad” and therefore outside the NIC net. Profits from the latter also relevant foreign income, so remittance basis potentially available. UK LLP profits fully taxable/NICable. These are often US firms, however, so the foreign profits have usually suffered a ton of US tax anyway.
Typical neo-marxist bullshit.
😱 after reading. ? Why are Millionaire’s + oligarchs never satisfied with how much they have. They really should be ashamed of their Abusive behaviour their aggressive tax avoidance ensure they take all the benefits of the country at no monetary cost. A benefit cheat however can be proud to have a higher moral standing as a “normal” person