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UK Resident Non-Domiciled Solutions

UK Government latest on UK Non-dom changes announced on 13th July that it will activate all the non-dom changes with effect from 5th April 2017 after the summer recess. These changes, along with other tax policies, were removed from Finance Act 2017 in the run up to the sudden general election on 8th June.

Draft legislation was published on 13th July. It is proposed that the new non-dom rules will be included in a second Finance Bill.
Controversially, the government has decided that the legislation will have retroactive effect from April 2017.

The rules will apply to foreign domiciliaries or ‘non-doms’ who have lived in the UK for more than 15 tax years and persons born in the UK with a UK domicile who obtain a domicile of choice elsewhere and later return to the UK. Such persons will become ‘deemed domiciled’ and will be subject to UK tax on their personal worldwide income. The remittance basis will no longer be available to persons who are deemed domiciled.

It appears that the government policy hopes to collect more tax from non-doms without prompting them to leave the UK for good.

Non-doms (but not those persons born in the UK with a UK domicile of origin who return to the UK claiming a foreign domicile) affected by these restrictions may use special trusts to protect their foreign assets from UK tax. Many non-doms set up such trusts before 6th April 2017 in the hope that the enacted legislation would be the same as the previously published drafts. Although, on the whole, a large part of the proposed legislation is the same as earlier drafts, there are some changes, and individuals should contact their tax advisor immediately to see how they are affected.

The published extract of the Finance Bill sets out transitional provisions providing opportunities for non-doms to reduce their UK tax exposure by:
Cleansing their mixed funds, and
Rebasing certain assets.
The proposed changes to the inheritance tax rules concerning residential property held by non-doms using overseas structures were also included in the government’s publication.

These changes will mean that UK residential property held through offshore companies, or financed using offshore assets will be subject to UK inheritance tax from 6th April 2017. This means that chargeable events post this date will be potentially subject to inheritance tax.

With effect from 6 April 2017, there will be a 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 background to this announcement is as follows:
 
On the 5th December 2016 HMRC published the draft 2017 finance bill. The draft legislation contains a number of changes to the way in which long term UK resident non domiciled individuals are to be taxed. The legislation follows announcements that were first made in the summer budget of 2015 and a consultation paper on 19 August 2016. Whilst the legislation is still in draft form, what we do know is as follows:
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• 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 which will reduce the impact of worldwide taxation for those becoming deemed domiciled. This will not shelter UK source income but to the extent that the trust is properly structured, the trust will be deemed as “Protected” and no tax on offshore income and gains will be due within the trust structure. It has been confirmed that carefully planned distributions can be made without losing the protected status, but no further settlements can be made in to the trust after the Settlor becomes deemed domiciled.

• 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 two year window for this, currently proposed to be the 2017/18 and 2018/19 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.

• Relocation.

Acquarius has almost 20 years experience as a professional Trustee licenced by the Financial Service 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.

Relocation - Why Gibraltar?
 
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Depending on personal ties another one option for an individual who may be penalized 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 neighboring 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 circa £28,000.

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.
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• 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.

For more information on how we can help contact Oliver Andlaw.