offshore money, offshore ETF traded on LSE - remittance ?

BlisteringBarnacles

Keeping it short. 

UK resident, paying tax on arising basis since 2009. Have offshore "mixed capital" (US Dollars) from pre-2008 days (not yet remitted to UK). [Non dom laws were pretty much revoked in 2008].

If I wire this offshore money (US Dollars) to Interactive Brokers in USD and buy Irish domiciled USD denominated  ETF on LSE, would that constitute a remittance into UK ?

The only connection to UK is : LSE. (London Stock Exchange). IBKR may look like a UK office (my statement actually says 20 Fenchurch Street) but as per customer agreement I am a client of IBLLC based in US and I wire my USD to IBKR's US holding bank account (Citibank New York).

The interesting thing is : IBKR Web user interface allows you to choose the exchange in which you trade. I did not explicitly choose LSE ( I was not even aware of this UI) but accepted the default so does it tantamount to me physically bringing the money to LSE office and making the trade ?

Posted on other forums but no response (yet). Linking them for reference only, not to take up your valuable time.

https://www.bogleheads.org/forum/viewtopic.php?p=8113885#p8113885

https://www.taxationweb.co.uk/forum/purchase-of-irish-etf-listed-in-london-for-uk-non-dom-remittance-risk-t50701.html  (Looks promising - similar question asked long ago).

Thanks

PS : If you know a top tax guru who can answer, please PM. I can afford 3 digit £ but not 4 digits.

poseidon1

BlisteringBarnacles said:

Keeping it short. 

UK resident, paying tax on arising basis since 2009. Have offshore "mixed capital" (US Dollars) from pre-2008 days (not yet remitted to UK). [Non dom laws were pretty much revoked in 2008].

If I wire this offshore money (US Dollars) to Interactive Brokers in USD and buy Irish domiciled USD denominated  ETF on LSE, would that constitute a remittance into UK ?

The only connection to UK is : LSE. (London Stock Exchange). IBKR may look like a UK office (my statement actually says 20 Fenchurch Street) but as per customer agreement I am a client of IBLLC based in US and I wire my USD to IBKR's US holding bank account (Citibank New York).

The interesting thing is : IBKR Web user interface allows you to choose the exchange in which you trade. I did not explicitly choose LSE ( I was not even aware of this UI) but accepted the default so does it tantamount to me physically bringing the money to LSE office and making the trade ?

Posted on other forums but no response (yet). Linking them for reference only, not to take up your valuable time.

https://www.bogleheads.org/forum/viewtopic.php?p=8113885#p8113885

https://www.taxationweb.co.uk/forum/purchase-of-irish-etf-listed-in-london-for-uk-non-dom-remittance-risk-t50701.html  (Looks promising - similar question asked long ago).

Thanks

PS : If you know a top tax guru who can answer, please PM. I can afford 3 digit £ but not 4 digits.

No doubt you are aware of the forthcoming abolition of non dom tax status to be implemented in 2025.

Seems you are still operating on remittance basis for mixed pre 2008 funds. You may therefore be interested in the proposed Temporary Repatriation Facility to be implemented in 2025 as follows:


'A new Temporary Repatriation Facility will be available for individuals who have previously claimed the remittance basis. They will be able to designate and remit at a reduced rate foreign income and gains that arose prior to the changes. This includes unattributed foreign income and gains held within trust structures. The Temporary Repatriation Facility will be available for a limited period of 3 tax years, from 2025 to 2026. The Temporary Repatriation Facility rate will be 12% for the first 2 years and 15% in the final tax year of operation'


I freely admit this does not address what you want to do now, but the lowish tax rates being quoted for the next 3 years under the new facility,  appears to be trying to incentivise onshoring your untaxed income and gains sooner rather than later. 

You might want to consider whether it makes more sense to onshore your pre 2008 mixed funds in its entirety next year, and take the 12% tax hit, rather than incurr the cost of professional advice in order to avoid inadvertently triggering a taxable remittance under the current ( very complex) rules. 

Also worth considering that even if you successfully implement what you plan right now without triggering a taxable remittance, you have a whole new non dom tax landscape to navigate next year for those funds.

BlisteringBarnacles

Thanks poseidon1

Thanks a lot for your detailed reply. I have not been following the non dom rules since a long time, because I have been declaring and paying tax on Arising Basis on ALL worldwide income and gains since 2009, even tho' I have not remitted any of those funds to UK. Yes your information is very useful and might be one way out of my mess. Might be a bit tough to figure out the amounts on which tax is unpaid.

Post 2009 : No issues here. Paid tax on arising basis. So, I used to convert the dollars into sterling on the date the dividend/interest was generated, same with purchase price, sale price (for CGT purposes), specify the amounts in sterling on UK tax return using Taxcalc software, get any credits for US tax already paid (dividends) and pay tax owed using UK money without remitting any of my US funds into UK.

2005-2008 : This is the period where I probably got away scot free for the most part, enjoying "tax haven" status in UK. Non resident alien from US standpoint, no US salary. But had US Bank Interest, Dividends, small capital gains. All totalling possibly $15,000. On 2 of those years I had an incompetent US tax accountant and ended up filing a resident tax return, so I think I paid a little bit of tax to US. In 2007 I went to a better accountant who advised me that non resident aliens do not pay US tax on US bank interest and capital gains. Had I been taxed as a UK domiciled on these income, I would have paid almost 40% on this $15,000 minus the tax already paid to US. Now If I have to pay only 12% on this now that indeed sounds like a bargain. I am not employed now tho'. If I stay unemployed the whole financial year, perhaps I can even use the personal allowance to pay even lower tax ? Or perhaps this 12% is a special "repatriation facilty" rate and has a lower bound of 12% ? I wonder.

2002-2004 : Here it gets very complex. I was an "expat" from the US - reporting to US office, on US pay (W-2), got living allowances in UK. My employer engaged a big 4 accounting firm to prepare and file my US and UK taxes. Going thru those returns is like doing a PhD in International Tax. The tax accountants did something called "equalization". In simple terms they explained to me that my personal tax liability would only be the same as if I were physically in US and not on an expat assignment in UK and the employer would take care of the rest. They prepared something called "hypothetical return" to demonstrate this. On my UK tax return, I suspect they would have used the remittance basis since I was obviously non domiciled in UK and I did Not remit any funds. But on a positive note, I would have certainly paid a good amount of tax to the US on US dividends / US bank interest / small capital gains since I was getting a salary out of the US office. But it will take some effort to work this out. While US tax on investment income was not 40%, it was still pretty high (probably 30%) since I was on a good wage.

Does currency appreciation come into the calculation somewhere ? What I mean is : This offshore money was always in US dollars. Pre-2008, there is obviously unpaid tax : That $15,000 arose on different dates from 2005 to 2008. So I can convert it to sterling as of those dates. (as they arose). And then I can calculate 12% ( or 40% or whatever) of that and pay it off. That should give me freedom to remit everything since it is all paid now. But dollar has also probably appreciated quite a bit since those days. If I bring the money into UK and convert to sterling now, is there a capital gains tax due to currency ? That would be a nightmare to calculate. Some of that money existed (capital) before I entered UK. I dont have every single bank / brokerage statement. Had I converted from sterling to dollar and back, it would be possible to do a cost basis.

I dont mind engaging couple of hours of a tax accountant to work out the cheapest way to sort this out : Either do a back of the envelope calculation and just overpay HMRC or do the exact calculation to the penny and pay a fortune to accountant. Certainly prefer the former.

I was also seriously considering going away to India hence delayed this "unnecessary" expense and kept avoiding remitting any of the USD funds.

Answer to the original question will also help, although your suggestion is possibly one way out of that quagmire.

Its all a big mess.

Thanks

BlisteringBarnacles

If it is only tax on the old pre 2008 $15,000, that too if the tax rate is just 12% then it is a no brainer to just bite the bullet and do it, assuming the expertise to do this calculation will not set me back a fortune.

But then if currency gain also comes into this then I have no idea how to calculate this and in that case I am probably better off going away for 5 years or more to reset the clock. Or just go away for good.

poseidon1

BlisteringBarnacles said:

If it is only tax on the old pre 2008 $15,000, that too if the tax rate is just 12% then it is a no brainer to just bite the bullet and do it, assuming the expertise to do this calculation will not set me back a fortune.

But then if currency gain also comes into this then I have no idea how to calculate this and in that case I am probably better off going away for 5 years or more to reset the clock. Or just go away for good.

Have noted you have not kept abreast of the (many) changes to non dom taxation since 2008.

In this regard you will have missed the effective abolition of taxation of foreign currency gains which took effect on 6 April 2012 - see link below for further information.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg78321

The precise details of how the Temporary Repatriation Facility will operate probably won't be known until nearer April 2025, but on the basis that you don't have to concern yourself about currency gains, doing your best to identify how much of the 15k represents untaxed income, should put you in a position to estimate the liablity thereon if eventually taxed at 12%.

Even if the Facility (when enacted) does not  permit use of your personal allowance to reduce or avoid the tax on remitted overseas income, you already concede that the 12% rate would be a bargain.

BlisteringBarnacles

Thanks poseidon1. Certainly useful info.

Any comments on my original question :-) ? Speculation / guess is ok :-) Asking because a) you seem knowledgeable and b) this new repatriation facility is going to be available only next year, am I right ? But I have already placed the trades on IBKR within the last month and traded on LSE. From my research, just the fact that the trades occurred on LSE alone most likely does not imply a remittance.

Thanks.

BlisteringBarnacles

[Deleted User] said:

Not my area but if I just look at the ETF, the question is whether the shares are a UK situs assets.  For TCGA (and some ITA purposes) this is defined (see s275 TCGA).  For Condition A, there is no statutory definition and so common law rules are applied.  These basically says that shares in a UK incorporated company are UK situs and that shares in other companies are sited where the register is kept.  Whether the shares are listed on the ETF is not relevant.   

The bank account and contractual agreements are relevant too.  If, for example, you owed the UK company for the shares and this was satisfied using the cash from the overseas bank account then I'd assume that was a remittance. But as I say this is not my area.

Thanks more_complicated_than_that

When you say shares in the ETF, do you mean the shares of the companies within the ETF ? Or the shares of the ETF itself ?

The ETF in question I purchased is an all world ETF. (Would obviously contain a small number of UK companies)
VWRD : Vanguard FTSE All-World UCITS ETF (USD) Distributing : ISIN : IE00B3RBWM25  
The ETF is domiciled in Ireland.

https://www.justetf.com/uk/etf-profile.html?isin=IE00B3RBWM25#overview

BlisteringBarnacles

In short :

1. My broker IBKR is actually domiciled in US : Explained here : https://www.bogleheads.org/forum/viewtopic.php?p=7369681#p7369681
2. The money is offshore, I wired the money from US bank to the US holding bank of IBKR (New York). so, no physical remittance into UK
3. The ETF is domiciled in Ireland
4. The only connection to UK is LSE. The trade occurs on LSE. This is well clarified to be NOT an issue here : https://www.taxationweb.co.uk/forum/purchase-of-irish-etf-listed-in-london-for-uk-non-dom-remittance-risk-t50701.html

Then why am I bothered ? Because IBKR Web user interface has an option for the user to choose an exchange where the financial instrument is traded. I was not even aware of this. I had obviously accepted the default. Does this tantamount to me walking over to LSE trading floor and making the trade ? If the broker did not give me such an option (to choose the exchange) then my case would be stronger. I have asked this technical point in that same taxationweb post but unfortunately did not get a reply. The concern (to avoid LSE) was raised to me by a reddit user : https://www.reddit.com/r/interactivebrokers/comments/1gmh4q3/comment/lwe35df/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button

All the above links are mentioned at the footnote in my bogleheads post : https://www.bogleheads.org/forum/viewtopic.php?p=8113885#p8113885

BlisteringBarnacles

[Deleted User] said:

BlisteringBarnacles said:

In short :

1. My broker IBKR is actually domiciled in US : Explained here : https://www.bogleheads.org/forum/viewtopic.php?p=7369681#p7369681
2. The money is offshore, I wired the money from US bank to the US holding bank of IBKR (New York). so, no physical remittance into UK
3. The ETF is domiciled in Ireland
4. The only connection to UK is LSE. The trade occurs on LSE. This is well clarified to be NOT an issue here : https://www.taxationweb.co.uk/forum/purchase-of-irish-etf-listed-in-london-for-uk-non-dom-remittance-risk-t50701.html

Then why am I bothered ? Because IBKR Web user interface has an option for the user to choose an exchange where the financial instrument is traded. I was not even aware of this. I had obviously accepted the default. Does this tantamount to me walking over to LSE trading floor and making the trade ? If the broker did not give me such an option (to choose the exchange) then my case would be stronger. I have asked this technical point in that same taxationweb post but unfortunately did not get a reply. The concern (to avoid LSE) was raised to me by a reddit user : https://www.reddit.com/r/interactivebrokers/comments/1gmh4q3/comment/lwe35df/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button

All the above links are mentioned at the footnote in my bogleheads post : https://www.bogleheads.org/forum/viewtopic.php?p=8113885#p8113885

It goes back to the question of fact as to who you contracted with and what happened to the cash.  If you paid a UK market maker for the shares then you may well have remitted cash to the UK.  If you paid a non-UK market maker then you might not have (but you could still have if you paid it to the UK branch of a non-resident company).  You'd need to dig further if you wanted to know.  Realistically you may not be able to find out and so you will need to take a view (perhaps with white space disclosure) for your tax return.

Interesting and thanks again for your feedback.

The comment in the taxationweb thread that I linked above looks at it differently tho. Not sure if you had an opportunity to look at it in depth : I quote :

User "maths" > It is difficult to see how the purchase of the ETFs using offshore monies in an offshore bank could constitute a remittance thereof even where the ETFs are LSE listed.

User "rr296" > I was thinking that my payment for the ETF shares (most likely) goes into the UK via my offshore bank given that the ETFs are traded by market makers who would typically operate out of London...but upon reflection, I guess that does not matter as those market makers (or more generally any market participant who might be selling their shares) are not "relevant persons" and therefore their location is irrelevant.... no service is being rendered to me in the UK, and no property is brought to / received in / used in the UK as the asset (ETF shares) I am acquiring with my offshore income and gains is non-UK situs.   is that the correct way to look at it in your opinion?

User "maths" > Yes

BlisteringBarnacles

[Deleted User] said:

As I say, it's not possible to say without understanding the facts but I was thinking more straightforwardly: "money or other property is brought to, or received or used in, the United Kingdom by or for the benefit of a relevant person"

Fair point, but I did not personally bring the money into the UK. I only dealt with IBKR and my account in IBKR is domiciled in the US, as per the customer agreement. IBKR deals with Vanguard to buy the funds. In this case that Vanguard ETF is domiciled in Ireland. 

Consider another scenario : I am UK resident and buy (using offshore funds) a US domiciled ETF using US broker and buy a Vanguard US domiciled World Stock market index fund. A teeny tiny bit of that (3%) would be British stocks. Some of the trades by Vanguard to buy the market cap weighted UK stocks would occur in Britain. Clearly my purchase of that US ETF would not constitute a remittance into UK.

In this case the doubt arises due to the trade of the ETF itself occurring on LSE. Everything else is offshore. I would tend to agree with user 'maths' on taxationweb. The only pesky doubt I have is that the broker gave me an option to choose a different exchange to trade the ETF but I did not do that and accepted the default (LSE). I doubt that is going to be an issue but who knows ...

BlisteringBarnacles

Further conversation with chatGPT :

Let us go back to my question about using offshore unremitted money (mixed capital) to buy Irish domiciled ETFs using Interactive Brokers but the trade occured on London Stock Exchange (LSE). As far as I can see, the only connection to the UK is the trade occuring on LSE. Everything else is offshore. How strong is the case this does not constitute a remittance ? Can you cite any references supporting it ? Has there been any case where such a scenario was ruled as remittance into UK ?

The question of whether using offshore funds to buy Irish-domiciled ETFs on the London Stock Exchange (LSE) constitutes a remittance is indeed nuanced. The main factor HMRC considers for remittance purposes is whether funds were “brought to, received in, or used in the UK” by the individual, either directly or indirectly.

In your case:

1. Offshore Nature of the Transaction:
   - If your offshore US dollars are held with Interactive Brokers in an account linked to IBLLC (based in the US), and you fund the account without remitting money to the UK, there is a strong argument that these funds are not directly brought into the UK.
   - Irish-domiciled ETFs are also non-UK assets, and if they pay dividends or capital gains, these would typically not be treated as UK income for tax purposes if held offshore.

2. Trading on LSE – Risk of Remittance:
   - Although the LSE is a UK-based exchange, purchasing shares of a non-UK entity (Irish-domiciled UCITS ETF) does not, by itself, imply a remittance of offshore funds. HMRC tends to focus on the ownership and control of the funds, rather than solely on where the exchange transaction occurs.
   - Generally, the purchase of a foreign-domiciled asset on the LSE, without converting or channeling funds through a UK account, is not viewed as remitting funds unless there is additional evidence of UK “use, enjoyment, or benefit” from the funds.

3. Supportive References and Interpretation
   - HMRC’s guidance in RDRM33100 (Remittance Basis: Meaning of Remitted to the UK) indicates that for a remittance to occur, there must be a clear link between the offshore funds and their usage or benefit in the UK. Since the Irish ETF is domiciled outside the UK, this suggests that the primary "benefit" remains offshore.
   - HMRC Statement of Practice 1/09 further clarifies that purchasing overseas investments does not constitute a remittance as long as funds do not transit through or provide a benefit in the UK.

4. Case Law on Exchange Transactions:
   - Although there is no specific case law directly addressing offshore investments via LSE, precedent cases such as Dawson v. CIR highlight that HMRC’s remittance focus lies on the asset’s domicile and any direct benefit or use in the UK rather than merely the transactional location.

While this analysis strongly supports that such an investment may not be considered a remittance, it’s a grey area. A tax advisor with experience in remittance basis cases could provide additional assurance, given that HMRC might scrutinize such complex cases, particularly if large sums are involved.

Regarding your point (2) above, in order to execute the trade on LSE the broker (IBKR) must have channeled funds to some party in the LSE and the broker has done it because I placed the trade, so would that be grounds for HMRC to claim that it is remittance ?

Your concern is understandable, as it raises the question of whether the broker’s movement of funds on your behalf to execute a trade on the LSE could indirectly constitute a remittance.

Here’s a closer look at this situation:

1. Broker as an Independent Party:
   - Interactive Brokers (IBKR), particularly through IBLLC in the US, acts as an independent entity in this transaction. You are effectively giving IBKR an instruction to buy an asset, not directly transferring funds to the LSE or any UK-based party. In this case, IBKR is executing the trade, possibly through a sub-account or other mechanisms that connect to the LSE, but this is done independently of you and does not imply you brought funds into the UK yourself.
   - From HMRC’s perspective, the ownership, control, and ultimate destination of the funds are key. The fact that IBKR has routed funds internally to complete a transaction on a UK exchange is generally seen as operational on the broker’s part and not as your direct remittance.

2. No Direct UK Benefit:
   - The remittance basis is concerned primarily with money or assets brought into the UK that you, as the taxpayer, directly or indirectly "use" or "benefit from" in the UK. In this case, the “benefit” (i.e., the ownership of the Irish-domiciled ETF) remains offshore, as the ETF is domiciled in Ireland.
   - HMRC usually would not treat a purchase of a non-UK investment as a remittance simply because it occurs on a UK exchange, provided no personal funds transit through the UK or a UK account.

3. Precedent and Guidance:
   - HMRC’s guidelines indicate that for remittance to apply, there has to be a clear, traceable benefit or usage in the UK. In practice, HMRC has not generally pursued remittance claims where funds remain under the control of an offshore broker and are used to purchase foreign-domiciled assets, even on UK exchanges.

4. Risk Mitigation:
   - If you remain concerned, one strategy to add further clarity could be to explicitly instruct the broker to ensure all transactions and settlements remain offshore to the extent possible. Although the trade will still execute on the LSE, some brokers can add notation to accounts to prioritize offshore funds routing.

In summary, HMRC is unlikely to claim this transaction as a remittance based on the available guidance, as there is no direct UK usage or benefit tied to your offshore funds. However, consulting with a specialist in remittance basis taxation could provide added assurance and address any nuances unique to your situation.