The latest covers the racy topic of time apportionment relief. This relief is intended to reduce chargeable event gains on “offshore” bonds to reflect the owner’s periods of residence outside the UK (covered by International Adviser last week).
The stated policy objectives are:
- To provide a greater alignment between the treatment of policies issued by insurers inside and outside the UK.
- To ensure that the rules on time apportionment relief provide a more appropriate reduction to gains.
- To ensure that the rules operate effectively in conjunction with the new statutory definition of residence and changes to the basic calculation of chargeable event gains.
What does this mean?
HMRC proposes extending the benefits of time apportionment relief to “onshore” bonds. This must be good news – not many consultations these days are aimed at extending tax reliefs.
The current rules are based on the tax residence of the policyholder rather than the real beneficial owner. It is proposed to focus the relief on the residence status of the beneficial owner. Again this development will be widely welcomed.
The current basis of calculation is “loose” and can offer tax avoidance opportunities. In line with the thrust of the current anti-avoidance initiatives, the basis of the calculation will be tightened up to close the perceived loopholes.
HMRC also wants to investigate situations arising from the recent changes to the chargeable event rules, whereby “previous gains” can only be deducted in a calculation if those previous gains have been subject to UK tax. There are situations in which double taxation can arise and HMRC is keen to find an “equitable” solution in such cases.
How does all this tie in with the introduction of a statutory residence test, expected to come into effect on 6 April 2013? There is a proposed anti-avoidance provision which will tax chargeable event gains realised during temporary periods of residence outside the UK.
Will these gains benefit from time apportionment relief? Apparently so – even though the impact of the anti-avoidance rules will thereby be lessened.
Whatever happens, the final rules will be more complex than the current ones. HMRC will provide additional guidance from policyholders, and life companies will be expected to play a small part in the “information” process.
Advisers will generally welcome these proposals while acknowledging that there is a lot of detail to be included before a final judgement can be made.
Gerry Brown is technical manager at Prudential International
