The British Virgin Islands and the Cayman Islands have entered into agreements with the UK for automatic disclosure of information in respect of interests in financial accounts held by UK residents.
Most UK residents are taxed on the “arising” basis meaning they are liable to pay UK tax on worldwide income and gains, wherever these arise or accrue. The resident non-domiciled or (RND) regime in the UK refers to the alternative remittance basis of assessment whereby UK resident but non domiciled individuals (broadly those whose permanent home is outside the UK) are liable to UK tax on UK source income and gains and foreign source income and gains that are remitted to the UK, but not foreign source income and gains that remain outside of the UK. RNDs must claim to be taxed under the remittance basis set out in Part 14 Chapter A1 of the UK Income Tax Act 2007.
Provision is made to cater for RNDs who have claimed the remittance basis of taxation through the alternative reporting regime or (ARR). In summary high level terms, if adopted, the ARR means that financial assets belonging to or controlled by a RND (and any income arising thereon) which are not brought into the UK are not reported by a Reporting Financial Institution to the BVI or Cayman tax authority and hence not passé don to HMRC. The rationale for this is that the RND is not liable to UK tax on such assets so HMRC has no need for BVI and Cayman Financial Institutions to report information on them. However, it should be noted that the name, address, date of birth and National Insurance number (if available) of the RND is still reported. HMRC will be alerted to the existence of accounts held or controlled by the RND (possibly for the first time) but the value and nature of the assets will not be reported.
The ARR has not been widely adopted by banks and other financial institutions with large client bases. Compliance with the regime is more onerous and with the introduction of reporting under the Common Reporting Standard (scheduled for 2017) it may only provide short term relief from fuller reporting for RNDs. Nonetheless, ARR is proving to be more popular with professional trustees and private trust companies who only have smaller number of impacted clients. This Guide considers the operation of the ARR on trusts resident in the BVI or Cayman.
Reporting Obligations
The reporting obligations imposed under the BVI-UK and Cayman-UK IGAs apply respectively to BVI or Cayman Islands resident trusts only where one of the following is identified as a UK Specified Person:
(i) the settlor;
(ii) the beneficiaries;
(iii) the trustees; and
(iv) any other natural person exercising ultimate control over the trust.
Reporting under UK FATCA does not commence until 2016. However, the first reporting deadline applies to both the 2014 and 2015 reporting periods.
Alternative Reporting Regime
The reporting period for the ARR is aligned with the UK tax year and is referred to as the Relevant Tax Year i.e. ending on 5 April each year. The ARR requires two elections to be made as follows:
(i) The Reporting FI – a one-off election to the BVI or Cayman local tax information authority (as applicable) confirming that it is offering the ARR to its RND clients by 29 May, 2015 for Cayman and 30 September, 2015 for BVI. Harneys Services has made an ARR election with the British Virgin Islands and Cayman Islands tax reporting authorities. While elections are required to be made by Cayman and/or BVI Financial Institutions in 2015, reports to be submitted under the ARR for the UK tax year ending 5 April 2015 are not due to the tax reporting authorities until 31 May 2016.
(ii) The RND – the RND must make an annual election to the Reporting Financial Institution which holds UK Reportable Accounts on behalf of the RND. The deadlines for a RND to make this election in respect of information to be reported for the UK tax year ending 5 April 2015 are 29 May, 2015 in Cayman and 28, September 2015 in the BVI. Any such election remains valid until revoked. In addition to the elections, the RND must provide a further certification by 28 February following the end of the relevant tax year (28 February 2016 for the tax year ending on 5 April 2015). The RND must certify in writing (and confirm with a signature):-
- Name, address, date of birth and national insurance number.
- Gross payments and movements of assets from an originating UK source into the UK Reportable Account;
- Gross payments and movements of assets from an originating source territory or jurisdiction that cannot be determined;
- Gross payments from the UK Reportable Account to an ultimate UK destination; and
- Gross payments from the UK Reportable Account to an ultimate territory or jurisdiction that cannot be determined.
Where gross payments and movements of assets have been made during the relevant tax year, the Reporting Cayman or BVI Financial Institution must also report:
- the account number; and
- the name of the Reporting Cayman or BVI Financial Institution and its Global
Intermediary Identification Number (GIIN) or in the BVI, if it does not have a GIIN, its BVI tax identification number.