UK: Tesco Fined £3m Million For Environmental and £5m for Safety Offences, over one incident of loss of 23,500 litres of petrol into sewers and the River Irwell

Acknowledgement: Denton’s

In June 2017, Tesco was fined £8 million for breaches of environmental and safety law. The prosecution followed an incident in July 2014 at a petrol filling station in Haslingden operated by Tesco. 23,500 litres of petrol were lost from a fuel tank during a 29-hour period, and the fuel entered sewers and the River Irwell. A multi-agency response took place, involving the Environment Agency, Lancashire County Council, United Utilities, Lancashire Fire and Rescue Service and Lancashire Police.

The Environment Agency and Lancashire County Council jointly prosecuted Tesco for breaches of the Environmental Permitting Regulations and the Dangerous Substances and Explosive Atmospheres Regulations. Tesco pleaded guilty to both offences.

The court found Tesco had failed to address a known issue with the fuel delivery system, had an inadequate alarm system in place and had poor emergency procedures once the incident occured. Residents had to leave their homes, reporting sickness and headaches, and fish were killed in the river. Tesco was fined £5 million for the effects on health and safety and £3 million for the environmental pollution.

Following the recent case on legal privilege, and the criticisms made by the court of Tesco’s emergency procedures, all organizations should consider the high risk areas of their business and how they should respond, both on a practical level and legally when incidents do occur.

UK Non-Dom Measures Delayed until Future Finance Bill

As a result of the recent announcement to hold a snap general election in June, the government has had to postpone many measures that were included in Finance Bill 2017 in order to pass through the legislation in a shortened timeframe before Parliament is dissolved on 3 May. It is expected that most of the […]

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UK non-dom status update

Changes to the UK non-dom regime are scheduled to take effect from 6 April 2017, with a transitional window in place until April 2019. The changes include deeming non-domiciled individuals who have been resident in the UK for 15 out of the previous 20 years as domiciled for income tax and capital gains tax, and applying inheritance tax to UK residential property owned by offshore structures.

The changes were removed from the Finance Bill this year ahead of the General Election, but were reintroduced last month. The announcement was met by disapproval from many in the accounting industry. The new law would see all non-doms liable to inheritance tax (IHT) on their UK residential property.

When are non-doms exposed to IHT?

Generally speaking, non-doms are only exposed to IHT on their personally held UK situated assets. In addition, every non-dom benefits from the IHT nil rate band, meaning that currently no IHT is payable on the first £325,000 of UK situated assets on death, assuming no lifetime gifts of UK situs assets.

UK residential property is a UK situs asset, of course, but in the past, non-doms wishing to own UK residential property would simply purchase it through an offshore company.

By interposing the company between themselves and the UK property, their ownership was of the shares of the offshore company – a non-UK situs asset not liable to IHT – and so, on the non-dom’s death, the UK property passed free of IHT to the next generation.

What about long-term UK resident non-doms?

The position of long term UK resident non-doms is slightly different. Once they had been resident in the UK for 17 out of the past 20 UK tax years (the new rules propose a reduction to 15 out of the previous 20 UK tax years), they become deemed UK domiciled for IHT purposes, regardless of what their actual domicile is.

Ignoring old estate duty double tax conventions, which can save the day in a few limited circumstances, deemed UK doms are liable to IHT on their worldwide, personally held assets.

Non-UK situated assets held in offshore trusts where the trust was created, and the transfer occurred, prior to deemed UK dom status starting, continued to be sheltered from IHT.

Offshore companies

If the government’s changes come to pass, the use of offshore companies to own UK residential property will no longer provide an IHT shelter. This will be the case for all non-doms, regardless of whether they are UK resident or not, or are deemed UK domiciled or not.

An interest in 5 per cent or more of a closely held offshore company, or partnership, which in turn owns, directly or indirectly, an interest in UK residential property of any kind, would be liable to IHT in the hands of the owner.

Further, any loan to or collateral given to another to enable that other to acquire UK residential property will also be a chargeable asset for IHT purposes.

Whole new band of IHT payers. If the changes are made, it seems that a whole new band of IHT taxpayers will be created – residential property owning non-doms. Many will come from jurisdictions which do not impose an estate or inheritance tax on death and will have no idea of the complexities of the IHT legislation – the IHT implications of making gifts with reservation of benefit (GROBs), for example. Hence, if the changes are made, there will shortly be a real need for advice to reassure non-doms that they can invest into the UK without losing 40 per cent of their investment to IHT.

What sort of solutions might work? Many of the IHT planning solutions currently used by UK doms will be of equal importance to non-doms. If these IHT changes come into effect, individuals are likely to start purchasing new UK residential property in their own names, rather than through an offshore entity, or removing existing properties from offshore structures into personal ownership. Some may work on the basis of selling their UK real estate before death is likely but they may not be familiar with using term life cover written in trust to cover the IHT risk. Married couples, both of whom have a non-UK domicile, can also take advantage of the generous, 100 per cent IHT spouse exemption on death.

Writing a UK will, ensuring that UK residential property passes to the surviving spouse after the first death, either outright or in a will trust giving the surviving spouse a life interest, will defer the IHT until the second death. If the surviving spouse sells the UK property and moves the proceeds abroad before their death, IHT may be legitimately avoided altogether.

Non-doms need to be made aware that gifts of UK residential property in lifetime, perhaps to the next generation, could have IHT implications if the gift is not survived by seven years. Again, term life cover may have a role to play. However, the IHT legislation disapplies, the GROB rules in certain situations where gifts of shares of property are made. A time when both UK doms and non-doms need high quality IHT planning advice may soon be upon us.

The full draft legislation will now be included in a Finance Bill, which will be introduced following the return of Parliament on 5 September 2017.

Acknowledgents to Accountancy Age and to the FT

Italy grants first successful non-dom status application to former UK non-dom

Italy has granted the first successful application for non-dom status following the introduction of a favourable tax regime for non-domiciled residents earlier this year.

The regime aims to attract investment to the country by offering newly tax resident individuals in Italy a yearly substitute tax of €100,000 (€25,000 for each additional relative) on foreign-sourced income, instead of taxing income on a worldwide basis. To qualify, individuals must have been non-tax resident in Italy for at least nine out the 10 years preceding their transfer to the country. The regime is valid for 15 years.

The first individual to have been granted non-dom status was represented by Withers. The firm said that the high net worth individual was previously registered as a non-dom in the UK, and decided to move to Italy “to take advantage of the new status and to establish a new hub for his family”.

Head of the Withers Italian tax team Giulia Cipollini, said: “Our client has been non-tax resident in Italy for the past nine years and owns assets and investments around the world and has been the director of several non-Italian companies. He is a great illustration of how the Italian res non-dom scheme can be extremely attractive for internationally mobile individuals and we’re delighted to have been able to secure the first approved non-dom application.”

Acknowledgement: Emma Smith of Accountancy Age