Category Archives: investments

Excluded Property Trusts – It pays to plan early!

5th August 2014

Inheritance tax, or IHT as we advisers like to call it, is one of those taxes that elicits two types of responses when the conversation comes around with clients.

In camp one are the clients that say they don’t really care what happens when they die and point out the fact they never had anything when they came into this world, so why should they be bothered if their heirs, children or relatives have to pay away 40% of what they inherit to the tax man.

Then there is camp two that feels the tax man has had enough out of them during their working lives and would like to make plans now to potentially mitigate as much of the IHT burden on their heirs, children or relatives.

Whilst delivering a budget statement in the house of commons, Gordon Brown once famously dubbed IHT as a voluntary tax, as he saw it as a tax you can plan to mitigate against by arranging your financial affairs properly.

For UK Resident/Non Domiciliaries it can be difficult to know what to do or where to start, as they are more likely to be unfamiliar with the particular nuances of the British tax system. However, UK Resident/Non Doms have a major advantage when it comes to potential IHT mitigation.

The main advantage you have, is the use of excluded property trusts. As UK Resident/Non Doms need to have lived in the UK for 17 years out of 20 before they become ‘deemed’ UK domiciled for IHT purposes, and therefore liable to IHT on your worldwide assets, so with a bit of early planning a whole lot of tax may potentially be mitigated.

An excluded property trust is used to place non-UK property or assets into. It will be free from UK inheritance tax even when your status changes in future (i.e. after you have lived in the UK 17 out of the last 20 tax years) and you become either deemed domicile or domicile in the UK at a later stage.

The following property is considered excluded:

Property that is situated outside of the UK
Cash and bank accounts located outside of the UK
Shares and other stock market securities registered outside of the UK
Offshore bonds

There are three main rules to follow to ensure that excluded trust investments will be outside of the UK inheritance tax net. Namely, when the trust is set up:

An individual must not be treated as UK domiciled
The trust must be free from UK based assets
No further money or assets must be put into the trust when an individual becomes deemed UK domiciled or is treated as UK domiciled.

An excluded property trust is essentially a discretionary trust offering flexibility as to who is able to benefit from the trust (including the settlor) and the choice of beneficiaries. The settlor also automatically becomes one of the trustees and will have control over the trust fund investments.

How does the excluded property trust concept work in practice?

Lets consider Ivan, a successful entrepreneur who has just relocated into the UK with his wife and children. Now that he has opened a subsidiary of his business in the UK, he still has an estate worth £5 million in his native country, comprised of cash and stock market securities.

Ivan is looking to make the UK his long-term home and has just bought a family house in London. As London property is a ‘UK-situs’ asset, it cannot be placed into the excluded property trust. However, Ivan is looking to purchase a holiday home in France and, if he uses the funds for this purchase from a non-UK bank account, the French property becomes an eligible asset.

Ivan also transfers most of his non-UK sited assets into the trust and appoints a financial adviser to invest on his behalf for future benefit of his wife and children whom he names as beneficiaries. One of the recommendations that the financial adviser made was to consider an offshore bond.

An additional benefit of an offshore bond is that as it produces no income, trustees (including Ivan) would not need to complete a self-assessment return.

As Ivan is a UK Resident/Non Dom at the time the gift into trust is made, then no IHT reporting or IHT is due at that time. As the property is considered excluded property, exit charges and periodic changes are not applicable.

So when Ivan eventually passes away (hopefully well after his 17+ years stay in the UK), only his UK situs assets, such as his UK property will fall into the UK IHT net as the excluded property trust was set up while he was not deemed UK domicile.

This example illustrates the use of the trust in relation to UK inheritance tax. It does not take account of any local tax that may arise in other countries.

The Value of a British Passport

20th August 2013

I’m sure we have all moaned about the UK for one reason or another, usually about the weather or our government and the cost of living etc.

However, the fact remains that the UK is a very attractive country to other individuals around the world and because we all live here full time, I believe we are all a little guilty of under-appreciating the positives of holding a UK passport or holding the ‘Indefinite Leave to Remain’ (ILR) stamp.

We are all aware of the lack of housing stock in certain parts of the UK (in particular Central London) which is mostly blamed on the fact that wealthy individuals from abroad are buying up the big houses in Knightsbridge & Kensington but the fact they are spending their money here rather than elsewhere is also generating huge amounts of tax revenue to the Chancellor.

The UK Government are mindful of the benefits to the UK economy of encouraging wealthy individuals to spend their money here and pay tax here in the UK, hence why they offer wealthy individuals a simple way into becoming a regular taxpayer and the opportunity of eventually having their very own British passport through the Tier 1 Investor Visa scheme.

What’s the Criteria?

Essentially, You must hold money of your own, under your own control in a UK regulated financial institution and disposable in the United Kingdom amounting to no less than £1 million. It must be unencumbered and needs to be invested within 90 days of arriving in the UK with your Tier 1 Investor Visa or if you are already here, then the 90 days will start from the date the Visa is granted.

If you borrow the £1m it can not be secured against another asset, and if you do borrow, then you have to evidence that you have a further £2m net assets after any liabilities. Obviously, the government is trying to ensure that you have sufficient wealth so as not to become a burden on our own state services.

Initially, the Tier 1 Investor Visa is granted for three years and four months and then the applicant must complete a continuous residence period of 2,3 or 5 years before they will be eligible to apply for settlement in the UK. The duration of this period depends on the amount of investment, as follows:

Continuous residence period of 5 years if: The applicant has an investment in the UK of at least £1m.
Continuous residence period of 3 years if: The applicant has an investment in the UK of at least £5m
Continuous residence period of 2 years if: The applicant has an investment in the UK of at least £10m.

After the initial three year period the applicant applies for an extension of stay beyond the initial period and subsequently applies for permanent permission to remain in the UK. It is at this point where the evidence of quarterly statements from your investment managers to show you have maintained the necessary level of investment at each quarterly point (or if under one quarter, then you have made good the difference by the following quarter) will be crucial.

What types of Investment are allowed?

Of course the whole idea of investor visa is to attract wealthy foreign nationals to the UK and they contribute to the UK economy/tax take. Therefore the investment must be on-shore, no collectives such as Unit Trusts, Investment Trusts, ETF’s or OEIC’s are allowed, nor any form of structured products.

Remember these rules are written by politicians, not investment experts, so the list of allowable investments are very basic, such as UK Government Gilts, Shares or Corporate Bonds of companies that are incorporated here in the UK. No more than 25% can be held in cash (so in reality, you only need to invest 75% of either the £1m, £5m or £10m in more volatile UK assets) and companies engaged in property investment, property management or property development are prohibited.

While the client is required to hold a minimum investment at all times, they can trade, so do not have to stick with the same investments throughout the whole term, but the 75% rule applies at all times.

The Cynical View

Some cynics amongst us may view this whole exercise as the British government selling British passports. But next time you are standing at the airport about to go on holiday – passport in hand, or bemoaning the state of the country’s economy or roads when stuck in a traffic jam and the terrible weather, just give a thought to the real value that others would place on swapping places with you and how fortunate you are to own one of the most respected documents in the world.

Know your onions when it comes to ETF’s

28th June 2013

For those readers not in the investment world and not familiar with the acronym ETF’s, it stands for ‘Exchange Traded Funds’, in simple terms they are trackers. In other words they track the performance of an index (such as the FTSE 100) either up or down.

Some argue that ETF’s are better than actively managed funds in terms of longer term performance as most fund managers tend to miss the point at which a market starts to pick up and some will argue that Actively managed funds are better as the fund manager can react when a market is falling by selling some holdings to reduce the risk etc, whereas trackers will do what they say on the tin and track the market all the way down as well as all the way up.

Another bone of contention has always been around the costs/charges when comparing an ETF to an Actively managed fund and up until 1st January this year, I would have found in favour of ETF’s in the majority of cases (if the investment decision was purely based on price). However, since the 1st January this year when the FSA’s Retail Distribution Review (RDR) was introduced and as a result most fund houses have now made available ‘clean’ & ‘super clean’ share classes (lets not expand on this bit of jargon at this point, or we could be here all day as this probably warrants another article all of it’s own) the argument based on cost alone is fairly neutral.

For those who still prefer ETF’s (for whatever reason) it pays to know your onions! as they are not all the same.

Running an ETF from the fund houses point of view can be very complex, for example, the indices themself don’t account for the transaction and management costs associated with running a fund, so an ETF is always going to slightly underperform the index it is tracking due to the charges/fees drag.

The other major complexity is how the ETF is structured, in other words, should it fully replicate the index it is tracking (this could be very expensive unless you have scale. To buy every company in the FTSE 100 for example everytime someone invested into the ETF would mean 100 separate trades).

There are essentially 4 ways ETF’s are usually structured, and before you invest you should be aware of which type you are investing…………….

1. Full Replication

Some managers aim to fully replicate the index, which means holding every stock in the same percentage as it is represented in the index. When the index rebalances, so too will the fund – this ensures the accuracyof portfolio holdings, but it can also limit flexibility.

Full replication is perhaps the purest method of index tracking, and it should produce a low tracking error. However, it can also be very expensive, since the transaction costs tend to be high for illiquid stocks. Fund size is therefore crucial, because larger funds are able to benefit from the economies of scale and minimise the impact of individual transactions to make the methodology viable.

2.Stratified Sampling

Rather than attempt to hold all of the stocks in an index at the exact weightings, some ETF’s hold a representative sample of the market – a strategy known as ‘Stratified Sampling’. Shares are selected by dividing the index into sub-groups (say, by industry sectors for equities, or by maturity bands for bonds), and representative samples are taken from each.

The objective here is to create a portfolio that mirrors the characteristics of each sub-group – and which, collectively, will also represent the whole market and therefore track the market index. This can be achieved using computer based models, but, compared to other methodologies it tends to have greater human interaction in the selection of the representative stocks.

3.Optimisation

This is often described as the ‘black box’ technique of passive strategies, because computer or statistical models are used to make buying and selling decisions. In this form of sampling, mathematical models, based on historical data, are used to construct a portfolio that aims to track the chosen index.

This approach is not easily adaptable to a changing investment environment and it will always play catch-up with the market. It is, however, the cheapest type of ETF to operate.

4.Synthetic Replication

I know this sounds like some sort of special persil or arial washing powder, but rather than buying the physical securities, the ETF can use derivatives to obtain ‘synthetic’ exposure to an index.

This method is generally more complex and leads to other risks, such as ‘counterparty risk’ i.e. who is actually standing behind the derivative and will they still be there when it’s time to pay out?

This is certainly the riskier method but by using derivatives some ETF’s are able to offer a return of an index x 2 etc as they are leveraging to increase exposure but this can also work in the opposite direction, so please beware and remember the old saying….”if you play with fire, you are likely to get burnt”

In summary – when it comes to the active vs passive argument there is no clear winner between actively managed funds or ETF’s, it just depends on the style of management you prefer and the markets you want exposure to.

However, it pays to know your onions before choosing an ETF to ensure you are comfortable with the underlying investment method being employed.

Are you a rational Investor?

24th June 2013

There is much discussion and debate in the investment world among fund management companies, psychologists and investment advisers regarding the subject commonly known as ‘Behavioural Finance’. So what is it and why should you be aware of it?

What is Behavioural Finance?

Behavioural Finance is a field of study which attempts to identify, understand and explain the human psychological and emotional factors that influence investors reasoning and decision making process. If we do not apply rational perspective when investing, we leave ourselves vulnerable to the impact of our own emotions, which may mean investing on an irrational gut instinct rather than underlying facts or fundamental principles.

Some of the reasons

Many investors base the price they are willing to pay for an asset on their perception of its immediate potential, focusing on short term newsflow and forecasts. However, these factors distract from the fundamentals, preventing the investor from viewing the investment as a long-term asset. This means that decision making is often based on irrational impulses, fuelled by common human psychological traits which cause us to form several kinds of emotional or cognitive biases, some of which are listed below:

Anchoring – Our tendency to rely too heavily on one specific piece of information, such as the price a stock use to be and so we assume it will get back to that point again.

Confirmation Bias – Where we only pay attention to information which supports our existing view, and discount anything which opposes it.

Overconfident Bias – An overly optimistic assessment of our own knowledge or abilities (often fed by Hindsight Bias – believing after an event that we could have predicted the outcome or “I knew it all along” bias).

Herd Behaviour – Where we follow the actions of the group, even if individually we may have recognised their actions as irrational, this is surely evident in the way markets always over-react to either good news or bad news then usually steadies out over the next few weeks. A good example of this, has to be the DotCom boom, surely with so many IT companies not even making a profit back then, it must have been obvious that to invest was an irrational herd mentality? It all seems obvious now in hindsight.

Behavioural Finance Affects Markets

Theories in ‘traditional’ finance, such as ‘Efficient Market Hypothesis’ (EMH) which asserts that markets are fully efficient and cannot be beaten as asset prices reflect all relevent information which is known by all buyers and sellers at all times, assumes that investors always behave rationally and logically. We know that this is not true of human nature.

Behavioural Finance identifies that people systematically make errors of judgement when they form investment decisions. When these mistakes become repeated throughout the investment community, they cause illogical price movements in assets. Such inafficiencies can offer a window of opportunity to those who recognise what is driving these price movements, and develop strategies to exploit them.

A notable episode of behavioural finance at play came in 2011 when an earthquake and tsunami hit Japan. While it could be expected that Japanese equity markets would fall after the disaster, European equity markets dropped equally as sharp – even though investors had little information on the likely impact of such a far-flung event on, for example, German companies.

How can Understanding Behavioural Finance help investors?

The principles behind behavioural finance sound straightforward enough, but how can they be used to construct and manage an investment portfolio?

One approach is to be objective and investigate scientifically how much you are being paid to invest in a particular asset. By comparing the yield provided by say, a government bond to that of a company share, an investor can objectively evaluate the relative attractiveness of each asset. However, this process has to be disciplined; the investor cannot be swayed by the sentiment surrounding each asset. In other words just because everyone is selling commodity funds at the moment or buying gold should not have any effect on your final decision.

Not every investor will be comfortable with following the rules of behavioural finance techniques. It can feel very lonely and as if you are being a bit risky when taking decisions that fly in the face of the norm (or should I say, not following the herd)

Nevertheless, the principles of behavioural finance can be harnessed by any investor willing to accept that a sizeable proportion of market movements can be attributed to noise rather than hard facts.

Ultimately, behavioural finance does not seek to ignore the human factor. Rather, it seeks to recognise it, acknowledge it’s important influence, and then strip it out of the analytical process in order to make successful long term investment decisions. After all, wouldn’t it be nice to have been invested in something from the beginning of it’s rise (such as gold) as oppose to be jumping on the band-wagon and following the herd because you read in the Daily Mail how everyone is investing in it and believing all the hype that it protects you against inflation!

The Power of Dividends

21st June 2013

High dividend paying stocks offer two things to the investor: a source of income that currently exceeds that available from US, UK and core Eurozone government bonds or cash accounts, and, secondly, a valuable good hedge against potential rising inflation.

For the income seeker, dividends can provide an attractive source of regular income payments that have the potential to rise in line with increases in inflation, as the underlying companies tend to raise the price of their goods or services in line or above inflation and therefore should look to move their dividend paying policy in the same way. For the capital growth seeker, it is dividend growth and the reinvestment of dividends that often provides stock market investors with the greatest proportion of their overall long-term return.

Dividends for the income seeker

Investors looking for income have traditionally sought the security of risk-free government bonds or fixed term deposit accounts at their local bank. But with yields on the most favoured government bonds often below inflation and the price being demanded for this income, has lead many income seekers to start looking to the equity market to provide an attractive level of income.

The traditional relationship between equities and government bonds, which existed in all the major markets in previous decades, was for the equity dividend yield to be lower than the government bond yield to compensate for the capital gain offered by holding equities. But this relationship has been inverted – in some cases sharply – in recent years.

Income from government bonds in those markets viewed as the safest, is at ultra low levels because of the currently prolonged period of low growth. However, this environment can be positive for higher yielding equities.

First, dividend paying stocks are supported by strong demand given the lack of attractive alternative income sources. Second, high dividend paying stocks are often found in the defensive sectors most able to withstand negative economic shocks.

Dividends for capital growth

Meanwhile, for investors seeking capital growth, dividend stocks are also appealing. The power of compounding means that reinvesting dividends over a sustained period provides a powerful boost to total returns. Over the past decade, for example, the return on the MSCI World Value Index (a good proxy for high dividend stocks) was 47% without reinvested dividends, but 105% if dividends were reinvested (source: Factset, data to 30th November 2012).

Dividends have also been the main driver of market returns over the long term. In each decade since the 1920s, dividends have contributed positively to investors’ returns, providing stability to portfolios and helping to limit losses when markets are falling (source: Factset, Standard & Poor’s).

Dividend-paying stocks can therefore play a dual role in a portfolio: to provide income, particularly in a world of very low interest rates and core government bond yields, and to provide a valuable source of total return over long investment horizons.

How re-investing your income can double your returns

4th February 2013

The benefits of compounding interest are clear-cut in the UK Equity Income sector, in one case boosting the total return of a £10,000 investment by an extra £26,000 over 20 years.

The impact on your portfolio of re-investing income should not be underestimated. Over the long-term, keeping your money in the market can dramatically increase the total return from an income-based fund.

An income fund is tailored to pay out a dividend yield on top of any capital gains.

Investors have the choice of taking the money and using it as a source of income, or re-investing it in the fund.

If they choose the latter, the principles of compounding interest come into play and the returns on a portfolio can escalate rapidly.

Neil Woodford’s Invesco Perpetual High Income fund is a good example of the impact re-investing dividends can have on total returns.

The five crown-rated portfolio is currently yielding 3.58 per cent. A £10,000 investment in the fund 20 years ago would have resulted in an income payout of £21,928.49 – after the basic UK tax rate.

The capital appreciation of the fund alone would have turned the original £10,000 investment into £48,153.26. Adding the additional income over the years, investors would have seen a total return of £70,081.75 from the fund.

However if investors had kept that money in Woodford’s hands, they would have made £96,558.06 on that initial investment – more than £26,000 more than if they had chosen not to re-invest dividends.

Performance of fund with and without dividends re-invested

Source: FE Analytics

Even over an investment period of as little as three years, the effects are noticeable.

An investor who had bought the five crown-rated Fidelity Enhanced Income fund at launch in 2009 and decided to keep their income would have missed out on nearly 40 percentage points on the upside, without taking the income over the investment term into account.

Performance of fund with and without dividends re-invested

Source: FE Analytics

In nominal terms, this means if they had invested £10,000 initially, this would have risen to £12,000, while the income paid would have amounted to £3,422.64. In total this is £500 less than the £15,864.49 figure that would have been accrued had dividends been re-invested. The yield on the Fidelity fund, at 7.11 per cent, is relatively high for the sector.

The benefits of re-investing dividends are more pronounced the more money that is put in and the longer it is invested for.

Looking at the popular four crown-rated Artemis High Income fund, which is yielding 5.92 per cent, a £10,000 initial investment over a 10-year period would have brought in £21,874.91, with dividends re-invested.

Spending this income would have meant the total investment was worth £1,595.32 less over the period – the initial investment would have grown to £12,093.36, while payouts would have totalled £8,186.23.

Performance of fund with and without dividends re-invested

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Source: FE Analytics

For the purpose of clarity, monthly savings plans have not been included in these figures; however the difference in total returns is even more pronounced when a drip-feeding technique is used.

HMRC to add a further 100 Tax Inspectors to the team focusing on Wealthy UK Individuals

16th January 2013

HM Revenue & Customs is to add 100 inspectors to its 200-strong Affluent Compliance Team, a team set up in 2010 to target wealthy Britons living in the UK who may be concealing money from the Revenue.

The team originally targeted those with annual earnings of more than £150,000 and wealth of between £2.5m and £20m however, this has been extended to those with wealth in the range of between £1m and £2.5m.

By the end of December last year the team had collected an extra £75m in tax, well ahead of HMRC’s expectations, and has a target to bring in £586m by the end of 2015.

HMRC said it plans to hire the extra inspectors using some of the £917m made available to it in 2010 by the UK government to help tackle tax evasion.

Exchequer secretary David Gauke said: “The vast majority of people pay their way. Dodging tax is immoral, illegal and unaffordable and the minority who cheat are increasingly finding that, thanks to the work of the Affluent Team, they have made a big mistake.”

John Cassidy, tax investigations and disputes resolution partner at PKF, said the decision to increase the unit is a “no brainer” for HMRC.

“Overall, the Government’s strategy of investing £917m to help HMRC increase annual tax yields by £7bn appears to be delivering results ahead of schedule, so it’s logical to bolster this area in the short term. Couple that with continued public anger with those who are perceived not to be paying their fair share of tax, and this is something of a no brainer.”

Did the Gold Bull Run End in 2012?

24th December 2012

The soaring price of gold started to ease over the course of 2012, leading some to question if the decade-long bull market for the yellow metal had drawn to a close.

Gold prices have seen an upward trend since the start of the decade and rose significantly as the financial crisis began to spread in 2007. Thanks to the metal’s safe haven status and demand for jewelry, gold has risen by close to 300% over the past ten years.

But gold has started to come down from recent highs. Signs of progress on the US fiscal cliff and the fading into the background of the eurozone crisis have bolstered investors’ confidence and pushed them from the safety of gold towards riskier assets such as equities.

Given that gold produces no income, it could be argued that it has been in a bubble since time immemorial and overdue a correction. On the other hand, I think there are a number of factors to suggest that the bull market for gold is set to continue for at least another year.

Calling the end of gold bull run

As of 19 December, the gold spot price was around $1,673/oz. This was a slight improvement over recent days when it dropped to a three-and-a-half month low, but below the record nominal high of $1,920 seen in September 2011.

Investor sentiment towards gold has shifted in recent years. The view that the precious metal was primarily a safe haven/inflation hedge appeared to falter as the price rose and concerns mounted that gold was in a bubble, with investors now regarding it as just another risky asset, after all – it is a commodity, and we all know that commodities are risky.

Julian Jessop, head of commodities research at Capital Economics, said: “Since gold is both expensive relative to its own history and provides no income, it is understandable that gold might now look less attractive to investors.”

Furthermore, important macroeconomic factors strengthen a negative outlook for gold price. In particular, a sustained recovery in the US economy could prove worrying for gold bulls as this could increase the likelihood of interest rate rises while making income-paying assets more attractive.

Goldman Sachs and BNP Paribas are among those calling the end of the gold bull market, having recently trimmed their 2013 forecasts to $1,800/oz and $1,865/oz respectively.

Gold supports in place

But despite these concerns, there are a number of reasons to expect gold to perform strongly in 2013 and improve from the relatively weak growth seen over the past year.

The outlooks for the eurozone and Japan are still on the weak side, despite recent signs of improvement. Europe’s financial crisis could flare up again next year if a lasting solution is not found while the fiscal position of Japan is attracting investors’ concerns.

Other issues that could allow gold to hold onto its safe-haven status include continued tensions in the Middle East and extended uncertainty about the US debt ceiling.

Meanwhile, monetary policy appears to be supportive of higher gold prices next year. So long as interest rates remain low and stimulus does not prove so effective it causes markets to anticipate its withdrawal, continued large-scale asset purchases by the major central banks will expand the monetary base and lift inflation expectations, aiding gold.

And while an improving outlook for the US economy would be negative for gold prices, a similar move in emerging markets would be beneficial for the metal. Rising incomes in such nations mean more people are able to afford to buy jewelry, offering a separate source of demand from investors and central banks.

Expecting gold to glitter

Factors such as the above have prompted Capital Economics and other market commentators to offer positive forecasts for gold prices next year.

Capital Economics said gold will reach a peak of $2,200/oz during the second half of 2013, up from its previous estimate of $2,000/oz. Bank of America Merrill Lynch has set a $2,000/oz target on the metal while Deutsche Bank recently raised its gold forecast to $2,113/oz for next year.

Gold has set itself apart from other commodities even though it has few practical uses and no income. Indeed, it can be regarded as another currency alongside the dollar, sterling, the yen and the rest.

We move into 2013 with an improved outlook on many fronts – the US economy, the eurozone crisis, Chinese growth. However, significant risks remain and are well flagged to investors. Because of this, it seems unlikely that 2013 will be year gold loses its shine.

UK Government rumoured to be considering their own FATCA legislation

8th December 2012

Britain’s overseas territories, including the Crown Dependencies (Jersey, Guernsey & Isle of Man), Gibraltar and the Cayman Islands, are expected to be seeking official confirmation with some urgency of a report that the UK government is planning a ‘son of FATCA’ aimed at obtaining information on all accounts held by British taxpayers.

News of the plans emerged in a report last Friday in International Tax Review (ITR), which said it had seen a copy of a leaked draft of a government document detailing how the scheme would work.

The ITR report referred to the plan as a ‘son of FATCA’ scheme, after the US Foreign Account Tax Compliance Act which demands information of foreign financial institutions on its taxpayers.

“The draft agreement…will require the automatic exchange of information for each reportable account of each reporting financial institution. That would include full details of all beneficial owners of the account, including those whose identities might otherwise be hidden by trusts or companies.

“It will also require the account number, name and identifying number of the reporting financial institution as provided when registering with the IRS for FATCA purposes, and the account balance or value as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year, immediately before closure.

“The move will deal an almost-fatal blow to tax evasion through the UK’s tax havens”, the ITR report went on, adding that it is “a coup for the Tax Justice Network, which has long been arguing for automatic information exchange”.

Publicly, Government ‘rejected’ need for ‘UK FATCA’

The document seen by ITR appeared to contradict a statement by the Government a couple of weeks back, in which it “publicly rejected the need for a UK version of FATCA” in a response to an International Development Committee report, the ITR noted.

But “in private…the Government has already drafted [this] legislation, which it will impose on its Crown Dependencies and Overseas Territories…[including] Cayman Islands, the Channel Islands and the Isle of Man.”

The ITR said it expected an “autumn” (2013) announcement from the Government, “with the legislation coming into effect on January 1, 2014”.

Little surprise in some quarters

The news will not come as a surprise to some observers, who have seen a global move towards greater willingness on the part of governments – particularly in the wake of the global financial crisis – to cooperate in an effort to boost their tax take from the large number of individuals many governments believe are hiding significant amounts of wealth offshore.

Some 14 months ago, Debbie Payne, a director of tax at PwC in London and an expert on FATCA, told an audience of private equity industry officials that there was “a distinct possibility” that certain European countries would decide to “break away” from the rest of the pack “and bring in their own domestic, FATCA-like regimes”.

She observed that the Americans were surprised at the negative response much of the rest of the world had shown to FATCA, since, she noted, the genesis for the plan had come out of meetings held by the G7 and G8 countries following the financial crisis, and subsequent discussions.

“They’re saying, ‘you were sitting in the same meetings as we were with the OECD, and you didn’t say [at that time that] you couldn’t or didn’t want to comply with this; so why are you getting so concerned when all we are doing is going first?’”

HMRC sending out warning letters to participants in an avoidance scheme

3rd December 2012

HM Revenue & Customs is sending letters directly to 1,500 people who it believes have signed up to one particular avoidance scheme.

The correspondence is believed to be the first of its kind and appears to be a pre-emptive strike strategy before the scheme’s legality is challenged, according to the report on BBC’s website.

The National Audit Office said in a report issued last week that HMRC was dealing with a backlog of 41,000 cases of aggressive tax avoidance involving individuals and small companies.

HMRC is sending out four versions of the same letter in a pilot scheme, one of which states: “You are in the small minority of people who have made the deliberate choice to avoid tax. We focus our resources on this small minority. The choice that you have made changes the way we view your tax affairs.

“Our specialist investigations unit will be carrying out a full investigation into this scheme and they will open an enquiry into your tax affairs.”

Another extract from the letters stated: “We are committed to challenging aggressive tax avoidance, and we will do so through the courts where appropriate. If we do this then it will lead to years of uncertainty about your tax affairs, and mean considerable additional cost to you. We are already challenging similar schemes and we have a very successful track record in the courts with schemes of this type.

Your decision to use a scheme such as this means that we will treat you as a higher risk customer. Therefore we will monitor more closely your tax affairs.”