You may have become aware that the UK Chancellor made major announcements in the Autumn Statement which effect the treatment of UK resident non-domiciled individuals. These are substantial changes to the position of non-doms and your situation may be changing between now and April 2017. As you may be aware Line Group does not provide tax advice but we strongly recommend that you seek advice as to how you should respond, if at all, to these changes. To assist you, we summarise below the key changes taking place in the areas of deemed UK domicile, Inheritance and Capital Gains Taxes, as well as indicating the possible solutions a number of tax advisers have brought to our attention.
Effective 6 April 2017, deemed domicile kicks in after 15 out of 20 tax years (previously 17 out of 20)
If you are non-UK domiciled and are resident in the UK you may well be taking advantage of the non-domicile rules. As of 6th April 2017 all individuals who have been resident in the United Kingdom for 15 out of 20 tax years will be deemed to be subject to all UK taxes, including Inheritance Tax and Capital Gains Tax. This is a major change and brings forward the time by which a non-domiciled individual should consider their position.
Further, if you were born in the UK with a UK domicile of origin but lost that status by choice the rules will also be changing for you: now you will be deemed UK domiciled whenever you are UK resident.
Changes to tax treatment of non-UK trusts
UK resident settlors will be taxed on any benefits arising to their close family (including cohabitee, spouse and children under 18) if the beneficiary is not taxed in the UK.
Good news, however: there is some protection for trusts existing at 6 April 2017
The Chancellor has extended some protection to trusts settled prior to the settlor becoming deemed domiciled in the UK. Settlors will not be taxed on foreign income or gains as they arise in the trust or its underlying entities. This treatment will continue to apply even in the case of some distributions from the trusts. However, it will be lost if additions are made to the trust.
You should be actively considering whether to establish a non-UK trust to settle new excluded property, as you may be able to obtain protection before becoming deemed domiciled. We can assist you in this process, including seeking relevant UK tax advice. You may need to act quickly.
Changes to Inheritance Tax with respect to UK residential property held by foreign companies
Close companies, i.e. those owned by five or fewer individuals, registered outside the UK which directly or indirectly own UK residential property will now be deemed to be a UK asset for the purposes of Inheritance Tax. This means the property will be included in the taxable estate on the death of an individual and also subject to all the other applicable UK Inheritance Tax rules.
It is important to note that the Chancellor has not given any allowance for what is known as “de-enveloping”. This is the term given to the process of unwinding a residential property-owning company structure.
Depending on your situation you may wish to consider setting up a life assurance policy, to avoid your heirs having to source funds to pay for an Inheritance Tax liability, which could otherwise mean that they need to sell off the property in the future. The advisers we work with are able to arrange insurance in most cases.
You may also want to think about gifting shares in the overseas company to a younger family member as part of your estate planning. Such a gift will be deemed a Potentially Exempt Transfer (PET), which would mean that the person gifting the shares would need to survive a period of 7 years in order for the PET to fall outside their estate.
Any action may well lead to a tax liability. It is important that full advice is taken before any steps are taken. We can help you arrange for appropriate advice to be obtained on your behalf from a UK tax expert.
The impact of being subject to Capital Gains Tax may be mitigated through the new rebasing of underlying assets
Subject to certain rules, foreign assets (including shares in foreign companies) held by individuals who will become deemed domiciled on 6th April 2017 may be “rebased” for the purposes of Capital Gains Tax. This means that they are revalued for the “cost of acquisition” element of the Capital Gains Tax calculation. This is a powerful tool and should be taken into account when considering your options.
So, what should you be doing?
If you are a UK resident non-doms you should be considering the effects of these far-reaching changes to your position. If you have not already done so, you should be taking advice from specialist advisers. This is a complex legal matter and you need the best guidance available, so as to take advantage of the changes and mitigate any detrimental effects they may have on you or your family’s affairs.
Changing structures takes time to implement and you should be seeking advice as soon as possible.
What Line Group can do to help
Line Group continues to offer the tools which allow you to implement any advice you may receive. We can introduce you to a number of UK tax advisers who can assist with the planning of your affairs to best position yourself for the coming changes.
We can source solutions which may be able to help you make the most of the opportunities these changes to the law offer, such as Offshore Bonds and Life Assurance policies. Line Group can also assist you settle new funds on pre-existing trusts, create new excluded property trusts and, as always, we will continue to offer the administration and support services required to maintain your non-UK investment structures.
For more information please contact:
Mark Okes-Voysey, Chief Executive Officer E: firstname.lastname@example.org / T: + 350 20079000