Autumn Statement 2022 has been accompanied by a policy paper proposing changes to the share-for-share exchange provisions to treat non-UK companies as UK companies where certain conditions are met.
UK Resident Non-Domiciled individuals claiming the Remittance Basis of Taxation had been able to use the Share-for-Share exchange provisions to insert a non-UK holding company above a UK business tax-free and to avoid UK tax on unremitted income and gains arising from that UK business.
Such structuring, prior to 17 November 2022, could cause any income or gains from the new holding company to be treated as of non-UK source, meaning a non-dom on the remittance basis would avoid UK tax provided the funds remained outside the UK.
The proposed provisions will prevent this avoidance by:
- Deeming a non-UK incorporated company who acquired a UK company in exchance for issuing shares in itself as located in the UK for Capital Gains Tax (CGT) purposes.
- Deeming income from that non-UK company as UK income.
The provisions will apply where:
- The UK company is a Close Company.
- The individual has a material interest and is a participator in that company.
- The non-UK company would be a close company if it were a UK company.
- The individual has a material interest and is a participator in the non-UK company following the share exchange.
An individual has a material interest if they, an associate, or in combination with an associate have more than 5% of the ordinary share capital of the company, or would be entitiled to more than 5% of the distributable assets on a winding up.
An election can be made to disapply the share for share rules, which would lead to a chargeable gain arising on the insertion of the non-UK holding company. If the election is made the proposed anti-avoidance provisions will not apply.
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