UK Resident Non-Domiciled
After a number of false starts the UK Government have finally released draft legislation for the Finance bill that significant changes to the way in which individuals who are resident in the UK but not domiciled in the UK will be treated for tax purposes.
The legislation will effectively back date with effect from April 2017 the following:
- Non-UK domiciled individuals who have been UK resident for 15 out of the past 20 UK tax years will be deemed domiciled in the UK, lose access to the remittance basis on their personal assets and be deemed domiciled for inheritance tax purposes.
- “Offshore” trusts will retain beneficial treatment to some extent which will reduce the impact of worldwide taxation for those becoming deemed domiciled. This will not shelter UK source income but is likely to mean no tax on offshore income and gains within the trust structure until the settlor or close family receives a benefit. Once a benefit is received, the trust will become transparent for tax purposes.
- Once they become deemed domiciled, an individual may claim relief for capital losses on non UK assets.
- It is proposed that all non-domiciled individuals will be able to separate out mixed fund bank accounts to facilitate remittances of capital to the UK. There will be a one year window for this, currently proposed to be the 2017/18 UK tax year. The above changes are to be enacted in the 2016 and 2017 Finance Acts and there is therefore very little time for Long-term resident non-UK domiciled individuals to react to these changes.
How can Acquarius Trust Group help?
There are likely to be a number of options available to individuals as opposed to simply allowing their world-wide income to be subject to UK tax depending on their existing arrangements and particular positions.
Solutions might include:
- The settlement of non UK assets in to Trust.
- The use of Multiple Trusts and the strategic “break” in protection of those trusts over time.
- Careful use of Life Insurance and Capital Retention.
Acquarius has over 20 years’ experience as a professional Trustee licensed by the Financial Services Commission. In anticipation of these changes, Acquarius Trust Group, are collaborating with a number of professional partners including leading world recognised banks, property agents and law firms as well as insurance providers and very importantly a carefully selected number of highly regarded UK taxation professionals to put together not just expert but timely solutions for individuals and their advisers.
Read more on our Trust Services here.
Depending on personal ties another option for an individual who may be penalised by the new rules may be to re-locate from the UK. Gibraltar could offer an excellent solution. Located at the southernmost tip of Iberia neighbouring Spain and opposite Morocco, with its competitive personal and corporate tax offering and a climate of between 300 and 320 days of sunshine a year, residence in Gibraltar can be particularly attractive with easy airport links from Gibraltar to the UK and with Malaga on our doorstep Gibraltar offers a fabulous life style choice. Whether your interest are watersports, golf or simply enjoying access to the Costa del Sol, Algarve or Morocco being a resident of British Gibraltar is an attractive proposition.
Gibraltar is a low tax and in some cases no tax environment for all residents. In the case of relocating individuals, additionally they can apply for a special tax residence status called Category 2 Status (Cat 2) which limits their liability to tax on their worldwide income to £27,560.
Acquarius Trust Group, together with its associated legal team, property experts, banks and insurance product providers can offer a one stop shop for those looking to relocate family, home and business. Experts in each field, and in particular UK based tax advisers are available to guide each party as required.
What should I be doing now?
The consensus view of all specialists in this area is that your thinking should include:
- Review and confirm domicile status and, in particular, the domicile of origin of family members.
- For those resident and non-domiciled in the UK, consider establishing and funding trusts ahead of 6 April 2017.
- For those resident and non-domiciled in the UK, establish when they will become deemed UK domiciled.
- For those with existing trusts, review the trust terms and assets.
- If assets are owned in a corporate structure but not via a trust, consider the potential introduction of a trust.
- Plan and establish new investment vehicles for tax efficiencies post 6 April 2017.
- Conduct a review of portfolios and other non-UK assets to make use of the rebasing rules.
- Identify mixed funds which can benefit from offshore segregation in 2017/18 • Capital losses are likely to be increasingly accessible in future years so investment advisers need to look at investment portfolios on a wider basis.
- For those who have left the UK and expect to be non-resident for fewer than five years, consider when to return to the UK • Plan now for periods outside the UK –as individuals will need to be out for six years to break the full deemed-dom status.
- Those with ‘mixed marriages’ (i.e., UK dom of origin spouse and non-UK dom origin spouse) may wish to consider allocation of assets, who establishes family trust etc. where the spouse with a UK dom of origin has a non-UK dom of choice. There is premium on having a spouse with a non-UK domicile of origin.
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It is important that these steps are carefully considered and with expert advice at every step.
For more information on how we can help contact Oliver Andlaw.