UK Budget 2012 – key points of interest for private clients from Russia and CIS
On 21 March 2012, the UK Chancellor, George Osborne, announced the UK's Budget with a clear focus on antiavoidance and ending unacceptable tax planning. A large number of the proposals will be of particular interest to the UK resident but non-domiciled community, including private clients from Russian and CIS countries living and/or investing in the UK. Some key points are summarised below.
1. Ownership of UK residential property
Non-UK domiciled individuals have often sheltered the value of UK property from UK inheritance tax ('IHT') through the use of offshore companies. This technique effectively moves the situs of the value of the UK property offshore and so takes it outside of the scope of IHT. However, this common planning has for some years been fraught with difficulties.
With effect from 22 March 2012, the SDLT rate increased to 7% for UK 'residential' properties worth more than £2 million, with a penal rate of 15% applicable to 'certain non-natural persons' investing in UK residential property worth more than £2 million. From 6 April 2013, it is also proposed that substantial annual charges will be levied in respect of such properties where they are already held by non-natural persons (will include companies, collective investment schemes and partnerships in which a non-natural person is a partner).
The charge to CGT is also to be extended to gains realised on disposals by 'non-resident non-natural persons' of UK residential property. This represents a major departure from the current basis on which CGT is levied. These changes will apply from 6 April 2013 and are subject to consultation. Whilst this gives individuals time to review their current holding structures and for now there is no change to the IHT treatment of such structures, all these changes will create further disincentives to holding residential property through offshore structures.
2. Non-UK domiciliaries and the remittance basis of taxation
The Government has reaffirmed its commitment to the introduction of a statutory residence test from April 2013 and promised a reduction in the 50% income tax rate to 45% for 2013–14.
As previously announced, from 6 April 2012, UK nondomiciliaries who have been resident in the UK for 12 or more years will continue to be able to enjoy the benefit of the remittance basis of taxation, but at the higher cost of £50,000 per year in addition to tax due on income or gains arising in or remitted to the UK.
While it was confirmed that the exemption for investment of untaxed monies into UK businesses by non-domiciliaries will be brought in from 6 April 2012, no further amendments to those rules were announced today. The Government will continue to consult on the extension of the relief and we await the publication of the Finance Bill with keen anticipation.
The simplifications to the remittance basis announced in December 2011 and the removal of foreign currency bank accounts from the scope of capital gains tax will also be included in the 2012 Finance Bill and take effect from 6 April 2012.
More details can be found in the stop press publications on our website.
Ratification of the protocol to the Russia-Cyprus double tax treaty
After a long while, on 15 February 2012 the Russian State Duma finally ratified the protocol to the Cyprus-Russia double tax treaty. The protocol will generally apply from 1 January 2013. Among other changes, the protocol updates articles on information exchange and assistance in tax collection and adds a limitation of benefits article. Provisions concerning capital gains on real estate rich assets will come into effect from 2017 only.
Issues to consider for founders/controlling shareholders of companies considering an IPO on the London Stock Exchange
(By Ben Simpson)
1.Obligations in relation to the IPO
1.1 Lock-in
You will be asked to enter into a lock-in arrangement pursuant to which you are not able to sell your shares for a period of time (usually 6 months). You would usually want to negotiate in some carve outs to any such lock-in (e.g. to allow moving shares into a family trust or to family members).
1.2 Representations and warranties under the underwriting agreement
The bookrunners will require warranties from the founders/existing controlling shareholders stating that they believe that the prospectus contains all necessary information to enable investors to make an informed assessment of the company. A raft of other warranties relating to the IPO process and the company's business are also usually included.
1.3 Statutory liability as a director of the company
If you are a director of the company, you will be required to take responsibility for the information in the prospectus and be a party to the underwriting agreement as the bookrunners will require the directors to give warranties.
1.4 Service agreement/letter of appointment
Normally, a new arm's length service agreement or letter of appointment would be put in place in anticipation of the IPO. Typical issues to negotiate in a service agreement include termination provisions, gardening leave, the scope of your duties and your compensation package.
2. Your role in the management of the company after the IPO
Where you and your family will retain a controlling stake in the company post IPO, the bookrunners may require a relationship agreement to be put in place. You may also want to have a control agreement in place to avoid the disposal of a group of family holdings.
3. Structure of your holding prior to the IPO
It is important that you take steps in advance of the IPO to adopt the optimal structure for your holding. One way to do this is by ensuring that the jurisdiction chosen for the IPO vehicle does not jeopardise your personal tax position. Failing that, setting up a structure that will shield you from any unwanted liabilities should be considered. If you remain a significant shareholder in the company following the IPO, any restructuring is likely to need to be disclosed to the market, which could cause other investors to question your actions. It may also be restricted by the terms of the listing. For this reason, it is advisable that any new holding structure is adopted before the listing.
Russia & CIS Private Client Forum
The 2nd Russia and CIS Private Client Forum – Zurich 29 February and 1 March 2012
The 2nd Russia and CIS Private Client Forum organised by Academy & Finance and chaired by Olga Boltenko and Andrew Terry of Withers LLP took place in the Dolder Grand Hotel in Zurich, Switzerland, on 29 February and 1 March 2012.
The Forum was a great success: it attracted over 270 participants from 16 countries and offered a unique and welcome opportunity for professionals working with private clients from Russia and the CIS to exchange experiences and insights and take advantage of networking opportunities. The feedback we received was excellent and we would like to share with you some of the testimonials we have received from participants:
The conference covered a broad range of topics in considerable depth, with two sessions running in parallel on Day 2. Topics covered included recent developments in Russian tax legislation, currency control, the needs of CIS clients in the context of wealth planning, matrimonial and succession issues, immigration, property acquisition and litigation.
Delegates heard detailed and insightful presentations from distinguished professionals, including private bankers, investment managers, lawyers and family officers, working with CIS clients in a range of jurisdictions, and had the opportunity to participate in panel discussions with the speakers. The presentations and discussions were of a consistently high standard, as well as being frank, open and challenging.
Day 1 saw the discussion of general issues, such as the reluctance of CIS high net worth individuals to relinquish control of assets for wealth planning purposes, the need to educate clients as to the value of services, the future sources of Russian wealth and new developments in wealth planning legislation and the industry, with contributions from Alex Kotchubey of Lombard Odier, Igor Ishchenko of Russian Commercial Bank and other distinguished speakers.
The day continued with presentations from Andrew Terry of Withers LLP, Kira Egorova of Alrud, Julia Zagonek of White & Case LLP and Christopher Coffin of Withers LLP. The afternoon speakers, Sofiya Zhylkaidarova of Signum Law Firm, Oksana Kneychuk of Astapov Lawyers (standing in for Irina Paliashvili of RULG) and Ilgar Mehti of Ekvita LLC, focused on wealth planning in the context of Kazakhstan, Ukraine and Azerbaijan.
On Day 2, two sessions ran in parallel, after break-out breakfast sessions run by Peter Economides of Totalserve, Jan van Bueren of Union Bancaire Privée and Jean-Luc Fisch of Allen & Overy. Session A focused on risk management, the needs of private clients from Russia and the CIS in relation to their family interests, as well as immigration and other requirements for clients moving from Russia or the CIS to Switzerland, the United Kingdom, the United Arab Emirates and Luxembourg, with presentations from Daniel Mateos of Werner Capital, Oleg Babinov of Risk Advisory Group Limited, Robert Amsterdam of Amsterdam & Peroff, Urs Haegi of Vischer Ltd, Ekaterina Mavrenkova of Henley & Partners and Mark Harper of Withers LLP.
Session B, with contributions from Justine Markowitz, partner at Withers LLP, David Brownbill of XXIV Old Buildings, Alexandre Kurgansky of Etude Colas, Dogliani, Kurgansky and Jennifer Foort of Savills, focused on the technicalities of wealth planning solutions for Russian and CIS clients, including international wills, Anglo Saxon trusts, private placement life insurance and private trust companies, as well as home ownership and real property structuring in Russia, Switzerland, the United Kingdom and France.
The closing session focused on the future of the profession, with presentations from Vladimir Gidirim of Ernst & Young (CIS), Roman Joukovski of Oracle Capital, and other speakers. The delegates heard from Sergey Chalykh of MMC Intergeo, who gave the client's perspective on the current situation in the wealth planning profession. The conference offered the opportunity to network over lunch and coffee, as well as at the Gala Dinner at the Baur au Lac hotel in the evening of Day 1.
The 3rd Russian & CIS Private Client Forum will take place on 6 and 7 March 2013 in Dolder Grand, Zurich. We are looking forward to see you there!
Our highlights....
We continuously work on numerous matters for Russian and CIS clients, but for reasons of confidentiality we cannot disclose most of them or provide any names. Listed below are just some of our matters with a CIS angle about which we are able to tell you to give you a flavour of what we do:
- Olga Boltenko, Judith Ingham, Jessica Dabbs and Ayshat Gaydarova have recently advised a number of Russian and Ukrainian families on UK pre-immigration planning and restructuring of their corporate and private assets prior to the move. Olga has also been advising them on establishing trusts as part of pre-immigration tax planning and work on implementation of the advice.
- Olga Boltenko, Sarah Cormack and Ayshat Gaydarova are currently dealing with international wealth planning structuring for a Russian individual with a diverse range of business and personal assets in Russia, the UK, the Netherlands, Germany, Cyprus, Switzerland and France. The project requires analysis as to the balance of potential costs and wealth/tax planning objectives of the client, involving various side issues with an upcoming Swiss/UK tax agreement and various aspects of post-relocation UK remittance basis taxation.
- Andrew Wass and Chloé Bakshi successfully acted in a claim for conversion, on behalf of the Claimants, a very wealthy Kazakh family and the directors of a Jersey company, the owners of a fleet of luxury cars, in the reported case of Lightning Bolt & ors v Elite Performance Cars & ors.
- Chris Coffin and Chloé Bakshi acted for the Claimant, a Russian developer, in an LCIA Arbitration together with a Russian law firm in a EUR 1 billion claim relating to the funding of the construction of a large shopping centre in Moscow.
- Chris Coffin and Lesley Timms recently oversaw a successful winding-up petition bought by a Russianowned BVI company against an English company owned by a Russian individual. This represented the culmination of more than 3 years of litigation, the petition debt itself based upon a series of loans made in 2006. The long-fought litigation produced other notable successes, including applications to overturn a Company Voluntary Arrangement ('CVA') supported by sham creditors and to secure a non-party costs order against the Russian director of the company subject to the CVA.
- Tim George recently assisted members of the CIS group (Olga Boltenko and Ayshat Gaydarova) in advising several Russian-based private clients on structuring the acquisition of high value UK residential properties, involving trusts structuring, restructure of two tier offshore corporate ownership for UK resident individuals, developing urgent post-exchange structuring options to ensure minimum UK tax implications.
- Also, members of the CIS team (Olga Boltenko, Ayshat Gaydarova and Deliya Meylanova) with assistance of Adam Dolder, following completion of the first advisory stage of the project, are currently involved in the second stage of international corporate restructuring project implementation for a leading Russian research and production company of hi-tech radio-electronic equipment, involving the co-ordination of work in various jurisdictions where the international group set up holding, financing and trading operations, including Switzerland, Jersey, the UK, Cyprus, the Netherlands, the Isle of Man and other countries; developing management and control guidelines for all companies of the group and assisting in all other tax and legal issues.
- Olga Boltenko currently advises a leading Swiss bank on the Russian tax consequences of establishing wealth planning vehicles for their Russian clients.
- Olga Boltenko, together with Michael Parets and Ayshat Gaydarova, advised a number of wealthy Russian families on issues of establishing wealth planning vehicles for Russian and US beneficiaries. The issues involve advising on the interaction between Russian and US tax law and the US/Russia double tax treaty with respect to tax residency, advice on Russian tax issues regarding settlement of the assets and US tax issues with regard to tax illegibility of the US beneficiaries.
- Andrew Terry and Alona Ligay have advised a Russian national on all aspects of the purchase of a B&B in Edinburgh through an offshore company. This is the second B&B acquisition for the client which Withers LLP has advised on, alongside advising on potential restructuring of the client's holdings of Russian business and personal assets.
- Andrew Terry, Matthew Woods and Paul Fairbairn have been advising a Ukrainian client on the restructuring of his personal and corporate assets prior to his relocation to the UK and anticipated IPO of part of his business assets. The scope of the original advice requested has now expanded to include advice on transfer of various assets to one of the two established trust structures and advice in relation to holding of residential property in the UK.
- Paul McGrath, Nadia Ignatius and Charles Webster have recently advised RBC cees Trustees Limited on their obligations as trustees of the Bank of Georgia executive equity compensation trust in relation to the tender offer by Bank of Georgia Holdings plc.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
