Post Panama


Once the initial furore over the “Panama papers” has died down, a sober analysis will undoubtedly reveal that, whilst there will have been many examples of undisclosed or illegal arrangements, there will equally have been many clients of Mossack Fonseca whose affairs were perfectly compliant and who had valid reasons for setting up offshore companies or structures.  What lessons should we draw for the future?


One reason individuals may have set up offshore structures is for confidentiality, particularly where their jurisdiction of origin is unstable or anarchic.  The first lesson of Panama is that confidentiality will be an increasingly rare commodity in the future.  Leaving aside unauthorised leaks, there is an inexorable pressure from the UK Government, the EU, the OECD and so on for greater transparency.  We are already saddled with FATCA (Foreign Account Tax Compliance Act) which requires disclosure to the IRS (the US taxman) of any arrangements with some connection with US persons.  Since under the UK/US Intergovernmental Agreement, the information is initially gathered on behalf of the IRS by the UK Revenue, the information is clearly of interest to the latter.  FATCA requires identification and reporting of the beneficiaries of most bank accounts, investment accounts and similar arrangements, with limited exemptions for such things as registered charities.  In 2017, the Common Reporting Standard will extend the exchange of this information not just from other countries to the US, but amongst more than 30 OECD nations.  Leaving aside the inevitable risks of so much information being entered into computers and exchanged, it is at least in theory confidential.  In contrast, the new Persons with Significant Control regulations for companies, which came into force this April, require UK companies to hold a register of the persons ultimately controlling them which must be available to the public.  The UK Government, which pioneered this initiative – and perhaps particularly Mr Cameron – are now under pressure to persuade the various offshore Crown dependencies to implement similar measures which currently they are resisting.

Real property

Apart from the authorities’ general desire to garner information, this zeal for disclosure is obviously driven by the need for most Western economies to maximise their tax revenues in a world where internet trading makes it easier than ever to shift the location of taxable profits from one country to another.  The one large area which does not lend itself to such treatment is real property, and George Osborne continues to think of further ways to increase the tax burden on property transactions.   ATED (the Annual Tax on Enveloped Dwellings) imposes an annual charge on residential property held in corporate structures.  From April, the threshold at which the tax applies was reduced to properties worth over £500,000.  There are certain exemptions, most notably for commercial letting, but even then a filing has to be made and the exemption claimed.  Since April 2015 non-residents have also been liable to Capital Gains Tax (CGT) on the disposal of residential property.  The proposed changes to the tax treatment of non-domiciles have been well trailed (if still not at this stage made crystal clear) and residential property held in overseas structures will lose its exemption for Inheritance Tax purposes from April 2017.  Now that the Finance Bill has been passed, individuals with residential property held in such structures should review those structures with their advisers carefully.  The Government has helpfully announced that individuals who automatically become deemed domiciled on 6 April 2017 will have an uplift in the base cost of their offshore assets.  This should make restructuring easier and cheaper in terms of tax.


In the new environment, just as governments are keen to maximise their tax take, they are also keen to promote enterprise and attract businesses.  There are a series of reliefs which either facilitate bringing funds which would otherwise be taxable into the UK, such as Business Investment Relief, or allow profits potentially to be rolled over or new profits made at a low rate of tax.  Examples are EIS (Enterprise Investment Scheme) and Entrepreneurs’ Relief.  The latter has now been extended so that not only officers and employees, but also pure investors in unquoted, trading companies can benefit from a 10% rate of CGT on up to £10 million of gain.  Even disregarding such reliefs, the rate of Corporation Tax is currently a relatively modest 20% and due to decline to 17% by 2020.  Maximising such statutory reliefs will be more important than ever in the future.

Business investment relief allows foreign income or foreign capital gains to be brought to the UK for investment without triggering a remittance.

Investment must be made through either share or loan capital into a limited company engaged in trading, developing or letting property or research and development.

If monies are not invested immediately, they must be invested into a qualifying investment within 45 days of arriving in the UK.  Similar provisions apply with regards to exporting the funds on exit.

The relief can be claimed in conjunction with other reliefs, e.g. EIS.


Enterprise Investment Scheme (EIS) is available on investments into new, ordinary shares of unquoted, trading companies.

EIS reliefs include 30% Income Tax Relief, Capital Gains Tax (CGT) deferral on investment and CGT free exit provided the qualifying conditions are met throughout.

The shares must be held for at least three years.

In addition, if the venture fails, loss relief is available.


Entrepreneur’s relief has hitherto been available to individuals and trustees who dispose of shares of a trading company or the whole or part of a trading business.

On a disposal of shares, the individual must have held at least 5% of the company’s ordinary share capital and be an officer or employee.  These conditions must have been met for at least 12 months.

Subject to the qualifying conditions, gains are then taxed at 10% (with a lifetime limit of £10 million of capital gains).

In the March 2016 Budget, the Government announced that entrepreneur’s relief will now be available to individuals who subscribe for new shares in qualifying companies after 17 March 2016 and hold the shares for at least three years (but are not officers or employees).

The limit is again £10 million of gains, but this is separate from the allowance for working shareholders.

Matthew Bennett, Partner, Fladgate LLP (

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