Editorial
July/August 2010
The value of limited-liability partnerships
If Alan Pink, our esteemed editor, had to name his favourite tax-saving vehicle, my guess is that it would be the limited-liability partnership (LLP). These have become even more attractive in light of the 50% tax regime. One way in which they can be used is in association with a corporate partner. Basically, you have (a) an LLP and (b) a limited company owned by the same partners. The company can then be used to mop up all the surplus income profits, which would otherwise be taxed at 50%. If partners want further income, this can be voted out as dividends. Because the corporate partner has a low percentage capital interest, if the business is ever sold most of the capital gain will be taxed on the individuals and should be eligible for various reliefs. If this all sounds interesting then I strongly recommend talking to Alan about it.
Some HMRC-related issues
HMRC has lost its case against Philip Turberville, a senior oil executive, who was born in Scotland in 1951 and lived and worked abroad from 1979 onwards. For most of this time, he kept a house in the UK on the advice of his main employer, Shell, who like employees to have an emergency base at all times. His children were also educated in the UK and, when he was in between assignments, he returned to the UK even though it was clearly temporary. HMRC’s argument was that he was ordinarily resident in the UK. The First-tier Tribunal disagreed and stressed that Mr Turberville had made a clean break with the UK and that he had had no settled life in the UK ever since. It was a welcome decision for taxpayers who had begun to fear, following Gaines-Cooper and other recent decisions, that it would be extremely difficult to meet any form of clean break test for either residence or ordinary residence.
In Taxation magazine for 17th June, Mark Morton discusses the taxman’s right to demand access to a taxpayer’s private bank account. If you run a business, you have to retain records for five years after the fixed filing date. If you are a non-business taxpayer, it is only one year and, interestingly, bank statements are not statutory. Morton says that 90% of requests for further information (generally referred to as the ‘opening letter’) include a request for bank accounts. He emphasises that you don’t have to supply them unless HMRC can prove, conclusively, that there has been a fiddle! Incidentally, he mentions in passing that there are very few HMRC inquiries being launched at the moment.
The same issue of Taxation also carries an article by Adam Craggs, reminding accountants that it is a taxpayer’s right to apply to the First-tier Tribunal for a closure notice on HMRC inquiries that seem to be going nowhere. He points out that taxpayers make scant use of this facility and that recent applications for closure have gone in the taxpayer’s favour.
Bearer shares are dead! Long live bearer shares!
As far as I know, there is only one jurisdiction left in the world where ownership of a company can remain 100% anonymous because all the shares are bearer shares: Panama. However, even the Panamanian government seems to accept that this cannot last for ever and has come up with something new that may appeal to those involved in international estate planning.
One of the big advantages of bearer shares is that they make passing assets on to beneficiaries so easy. No probate is required. The transfer is quick and free. It should all be tax-free. With this in mind, Panama has come up with something called a private interest foundation. This is a distinct legal entity without either members or shareholders. Instead, it is run by a management body called a Council. The Council’s membership is not confined to individuals, companies can belong and its job is to manage the foundation’s affairs. The founder completely transfers assets to the foundation but maintains control over the course of his lifetime and determines their disposition after his death. Providing no fraud is involved, ownership of the assets can’t be challenged.
The beauty of Uruguay
Uruguay has long been referred to as the Switzerland of South America, but given the way the Swiss financial system has been heading with the loss of banking secrecy and increased rates of taxation, well, one might say that Uruguay was somewhat better. It offers virtually tax-free corporate structures, virtually tax-free residence and the possibility of a passport for as little as $100,000. It is, in a way, rather like America used to be: civilised but in need of extra human resources to build the country up. If the latest Budget is making you think twice about remaining in the UK, you could do worse than Uruguay. According to Transparency International, Uruguay is rated as the least corrupt country in Latin America, with its political and labour conditions being among the freest on the continent. Not unrelatedly, Uruguay is one of the most economically developed countries in South America, with a high GDP per capita and the 50th highest quality of life in the world. The population is smaller than Ireland’s at around 3.5 million.
Budget comment
I will cover the Budget in a future editorial. I have long found that the devil, as it were, is in the detail and it is what is said after the Budget (especially by HMRC) that is most relevant. Personally, I was sorry to see that the new government plans to carry on tinkering with the tax system. What the country desperately needs is something altogether simpler. My dream is for a single rate of corporate tax, income tax and sales tax with no exceptions or reliefs and imprisonment and hard labour for anyone who tries to avoid it. The reality is that the government receives a staggering 40% or so of GDP every year but does so in a very sneaky and underhand way. If we believe that 40% of what we earn should go to the State (and I am not arguing about it) then we should have a more honest and straightforward collection system. The trouble remains that governments see tax as a way of attracting and rewarding voters instead of a way of paying for services and assets for the common good.
