Purchase of Irish ETF listed in London for UK non-dom - remittance risk?

[rr296]

I believe the question has been raised a few times over the past 10 years but I have not seen a clear response, so I wanted to ask one more time.

I am UK resident but non-dom. I have an offshore bank & brokerage account in Jersey. Through that offshore broker, I am looking to buy a Dublin-domiciled ETF listed on the London Stock Exchange. The source of the funds is mixed (i.e. not clean capital).

The asset situs (eg for CGT and IHT purposes) is clearly offshore as the share register for the ETF is based in Dublin - so I would not be acquiring any UK property.

Given the above - does the fact that the transaction is effected through the LSE constitute a risk that the transaction is deemed a remittance by HMRC? or is it irrelevant?

I can see a parallel with an offshore-to-offshore payment, where my Jersey bank may well route that through London but because this is purely mechanistical and wholly outside my control - it wouldn't be deemed a remittance (or at least that's my understanding). But here in a way, I would make a choice to acquire the ETF that has a London listing - so there is an element of choice...

Anyhow - expert views welcome...!

[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.

[rr296]

thanks maths

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?

[maths]

is that the correct way to look at it in your opinion?

Yes.

[lostdude]

Very Interesting post. I am in almost the same boat. Would the picture change if the offshore broker gave you an option on the mobile app / web app to choose the exchange ?

TL;DR : UK resident; offshore US Dollars --> US Holding bank of IBKR -> Buy Irish domiciled ETF on LSE -> Is it a remittance into UK ?

I am UK resident. Opened an account with Interactive brokers (IBKR) UK. My monthly statement says 20 Fenchurch Street, London. But IBKR customer agreement says I am a client of IBLLC, and not of IBUK, for the purposes of the provision of the Client Money and Custody Services. IBLLC is located in the US.

I wire my US dollars ("mixed capital") from US bank, to Interactive Brokers' holding bank in New York. So the money has not entered the UK at this point. I buy Irish domiciled ETFs.

The only connection to UK is LSE (London Stock Exchange). The trade occurs on LSE. Everything else is offshore (Money, Broker, ETF). The currency (USD) of the trade is also not sterling

Now, IBKR has a user interface where I as a user, can choose the exchange. I just accepted the default (I did not even know such an option exists). Therefore is it considered the same as if I physically went over to LSE trading office with the offshore money in a wallet and made the trade ? If IBKR did not have an interface for me to select the exchange and if they (IBKR) did it all in the background for me without my ability to influence it, then my position would be stronger.

Therefore would this be considered a remittance into UK ?

@maths : I would appreciate your comment, please, thanks ! Or someone please PM me a good tax guru who can answer this one question for me.

Thank you so much !

[lostdude]

Okay it appears that this is not a high traffic forum. Well, thats life.

Anyway thanks for reading. I will try and get an opinion that will probably cost me a lot of money. If I get such an opinion I will certainly post here in the hope it helps others who may be in a similar situation.

Thanks all !

[someone]

Your question is a legal, not a tax question so you're not particularly likely to get an answer here. There are plenty of people who will tell you what the tax consequences are once the legal question of whether there is or isn't a remittance is settled.

To complicate matter further, I suspect it doesn't matter at all where the shares trade, it's where the trade clears that might matter (if it matters at all). Most likely it will clear at LCH (UK) but it could clear elsewhere. If the numbers are big enough you probably could request for it to clear offshore (although my gut feeling is that you wouldn't be talking about IBKR if that were the case, you'd possibly have an account direct with one of the custodian banks). LIS for ETFs under MiFID is 1M EUR, no idea what the GBP limit would be so that would be another option if you're making big trades, you'd only have to report via LSE then.

Finally clearing settles net. Unless you're talking huge trades that will have a significant market impact, you're almost certainly going to be "in the noise" and whether the net flow from IBKR is cash to or from the clearing house is going to be independent of the direction of your trades.

Why do you particularly want to trade on LSE? Many Irish domiciled ETFs are listed on Euronext or Xetra and IBKR offers them. The .2% or whatever it is you'll pay converting your money to EUR is likely to be far smaller than the bill for an opinion on whether trading shares on LSE is a remittance.

[lostdude]

Dear someone,

First of all, thank you. Question : Would your answer be the same to the OP (Original poster) rr296 ?

The difference between OP's situation and mine is :

1) My broker is Interactive Brokers (IBKR UK) and the monthly statement shows London address. BUT, and this is an important point, as per IBKR's client agreement, I am a client of IBLLC (US), therefore it is an offshore broker so far as I am concerned (similar to OP). This is clearly mentioned here : https://www.bogleheads.org/forum/viewtopic.php?p=7369681#p7369681
2) IBKR has a web UI where user can choose the exchange. This is my worry. I did not know this and just accepted the default. In OP's case, perhaps they had no control over it and hence cannot be held liable for making the trade on LSE ? Whereas, in my case I had an option to Avoid LSE but I overlooked it. I came to know about it in a different context on a reddit post and I was alerted to the LSE point by a reddit user suggesting that I might have triggered a remittance : https://www.reddit.com/r/interactivebrokers/comments/1gmh4q3/comment/lw8g317/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button
3) The OP's post is from 7 years ago so the rules may have been different then ?

The point about "relevant parties" that OP rr296 and user "maths" have exchanged are very interesting. I suppose your opinion is different in this regard ?

To answer your question, I am not particularly interested in trading on LSE. But IF my IBKR trade last month indeed constitutes a remittance, then the damage is already done and I may as well continue to trade on LSE in future and in fact I can even physically remit all my US dollars from US to UK bank - because : I am only talking around $15,000 of UK-untaxed investment income. This is from pre-2008 on which I was legally not required to pay any UK tax since I did not remit (non dom). In 2008 non dom rules changed overnight. From 2009, I have paid all UK tax on worldwide income on arising basis. I have been kicking the can and trying to put off paying the tax on this old $15,000 from pre-2008 days. But because of this headache I am unable to remit any of the remaining 6 digit sums from US into UK ( even tho tax has been paid on the rest ) because everything is "mixed capital" ( I did not keep separate buckets ) - consequently, if I remit even $1 now, it will be treated as being remitted out of the untaxed $15,000. But then, on the flip side, if I actually settle the tax on the old $15,000 then this saga is over for good, my sleep will improve, blood pressure will come down and I can find some other hobby. Trying to avoid it so far because I may relocate away from UK for good next year.

Some more history : No US green card/citizenship. UK naturalized citizen.

1994 to 2001 : No connection to UK. employed in USA. Bank savings, investments in US dollars in banks/brokerages.
2002 to 2004 : US expat on UK assignment. reporting to US office, paid out of US, living allowance in UK. Very complicated tax returns in US and UK prepared by Big 4 accounting firm that I did not follow. To make it easy to follow, they would prepare a "hypothetical" tax return for me - as if I am virtually in US and paying normal US tax. Any additional tax liability was taken care of by my employer. I think I have those returns but dont understand them. They probably used non dom rules to avoid paying UK tax on US investment income (dividends, bank interest) but I am pretty sure I paid considerable tax on it to USA since I was on a good wage. So, had I been UK domiciled, any UK tax due after getting credit for paying tax to US would not amount to much. But figuring this now would need an army of Finance PhDs from Cambridge/Oxford and I might go bankrupt paying them.
2005 to 2008 : Much simpler affairs. On UK PAYE salary. Did not pay UK tax on US investment income (interest, dividends, capital gains) but paid a small amount of tax to US because of incompetent accountant who filed resident tax return. In 2007, went to a good US accountant who confirmed that no US tax is due on bank interest and capital gains for NRA (Non resident alien). From 2005 to 2008, US investment income is probably around $15,000 on which very little tax has been paid and certainly no UK tax
2009 onwards : all tax has been paid to UK HMRC on arising basis. So, 40% on US bank interest, capital gains above £12,000 etc

So far I have taken care not to remit from US to UK, but is my Interactive Broker (IBKR) trade from last month for $100,000 considered a remittance into UK ?

I can phone HMRC but the sort of people who answer telephone lines are unlikely to have this knowledge and they may just take a hard stance and say it is remittance without having the time or patience to have a naunced discussion. And then it would be on a recorded line. Hence dont want to call them.

if there is a knowledgeable lawyer, I am happy to pay a few hundred pounds (not thousands) to get this question answered. Please PM me if anyone knows such a lawyer / tax expert / etc.

[lostdude]

Re-reading the OP rr296's post, I realize that I am in exactly the same situation !! rr296's last line says "I would make a choice to acquire the ETF that has a London listing - so there is an element of choice..." which is indeed the case with me as well (element of choice). The reply by "maths" should therefore apply to me too. The further clarification by rr296 is top quality as well (esp the comment about market makers and relevant persons is gold) and I am now pretty much convinced that my trade of VWRD (Vanguard All World UCITS ETF - USD Distributing) that occurred on LSE last month is highly unlikely to be a remittance.

Facts : "mixed capital" US dollars in US bank. Never remitted into UK. Money then wired from US bank to IBKR's holding bank in New York. My IBKR USD account thus gets funded. I put in a buy order to buy VWRD (Irish domiciled ETF). It does trade in LSE and gets executed.

I am not going to spend millions to a magic circle law office to get this point clarified. If HMRC challenges me, I am going to argue as in the first 3 posts on this thread - looks pretty solid to me - and if they refuse to accept, I will just say "Ok you win. Its a remittance. I'll pay 40% on the old $15,000 from pre-2008 days". I have paid tax on arising basis on everything since then, so nothing else is due. 40% of 15,000 should still be far less than paying for Saville Row suits and mahogany desk in the 39th floor of Gherkin Tower.

[bd6759]

You should read Anthony Clynes v HMRC.

If you are wrong, your refusal to take advice to find out the correct tax position could be viewed as a deliberate inaccuracy.