HMRC treatment of offshore trading income

[spacecat]

Hi everyone, I've been reading the many very interesting threads in this section but haven't found an answer to my question:

I am resident (but not domiciled) in the UK. I have some offshore cash and want to use it to start an automated day-trading strategy.

If I use an offshore broker for this, will HMRC view the trading income as originating offshore or from within the UK?

I have found conflicting opinions on various web pages:
- some offshore brokers claim the income would be offshore, because their servers are located offshore and "that's where the orders originate and that's what matters"...
- and some individuals suggesting that the income would be UK-derived, because the strategy would be managed from within the UK (the trading decisions would be made in the UK by a computer program developed in the UK), and the fact that the trading instructions are sent to - and executed by - an offshore broker is irrelevant...


Thank you in advance for any help.

-spaceCat

 

[Trader333]

If you are not domiciled in the uk then "I think" (but could be wrong), that it is classed as offshore. However, you need to seek specialist advice from a tax professional in my view.



Paul

 

[scose-no-doubt]

Not advice but rather a general line of enquiry. If I were you I'd be trying to argue that the initial amounts deposited and traded did not come from UK income neither the initial funds nor the gains were brought back into the UK. if you can't do that I think you're basically in for an uphill and possibly futile struggle.
Just be aware that this is a huge area of taxation law that is now under real scrutiny after the whole gaines-cooper fiasco and you really are best seeking specialist help.

 

[spacecat]

Thanks for your quick replies, Paul & Scose.

Scose, that was roughly my thinking. It comes down to "where do HMRC think the work is being done?" - I would argue that the source and location of the capital, trading account and brokerage services are at least as important as where I'm living when I make trading decisions.

I will definitely seek specialist advice before going too far but I thought if someone here could definitively tell me it was a "no-go" then I'd save myself time and money and go back to the drawing board.

Any more advice from anyone?

Cheers.

 

[scose-no-doubt]

Well did you bring the money into the UK?

 

[spacecat]

No, the money was earned offshore and has remained outside the UK.

 

[scose-no-doubt]

Might have a shot then. Don't get your hopes up from what I say though though. I usually deal in on residency not non-dom so you only pick up bits of pieces of what is really a different kettle of fish.

 

[airmark]

Don't you have to pay the £30k charge for using the remittance rule though, even if the money stays abroad?
Maybe one way to avoid it is to set up a company (LLC) that you own and all the trading (and the profits) to stay within the LLC as retained earnings and only pay yourself via a dividend when you leave this country for good.

 

[donaldduke]

Don't you have to pay the £30k charge for using the remittance rule though, even if the money stays abroad?
Maybe one way to avoid it is to set up a company (LLC) that you own and all the trading (and the profits) to stay within the LLC as retained earnings and only pay yourself via a dividend when you leave this country for good.

I think there is a 7 year allowance before the 30k charge kicks in?

But back to original point made by the OP.

If what you are doing can be classed under income tax ie your trading is market making or arbitrage etc, then it will depend on where the trading is being carried out from, so if you do that from the uk then your non dom status will be irrelevant.

But if, as is more likely, what you are doing is speculation and falls under capital gains then you can use your non dom status even though your activities are being done from the uk as long as the money and your broker is offshore.

This is my understanding based on what i have read, but im not an accountant or tax lawyer. The OP should get professional advice.

 

[MrFatbelly]

Try reading through HMRC6 which replaced the old IR20 and explains Residence, Domicile and the Remittance Rule. This PDF booklet also has tables at the back explaining whether income is liable to tax depending on the individual's status and how and where the income was earned.

 

[Jenny Foster]

This article may also help you: Using offshore companies | Accountants for Traders