Most Read Contributor in British Virgin Islands, February 2017
The clock is ticking towards April 2017 when the new rules
affecting the status of non-domiciled but UK resident individuals
as set out in Finance Bill 2017 will take full force and effect.
There are estimated to be around 115,000 non-domiciled residents of
the UK, and under current law, 'non-doms' enjoy a favoured
tax regime in the UK. They are liable to UK tax on UK source income
and gains, but can opt for overseas income and gains to be taxed on
the remittance basis so that UK tax is only payable on foreign
income or gains that are actually remitted to the UK. For UK
inheritance tax purposes, non-domiciled individuals are only
subject to inheritance tax on their UK situated assets.
This is all about to change.
The new rules
'Non-dom' status is to be taken away from those who have
lived in the UK for more than 15 of the last 20 years. From 6 April
2017, individuals who have been resident in the UK for more than 15
out of the previous 20 tax years will be regarded as deemed
domiciled in the UK for all UK tax purposes. This means that such
individuals will no longer be able to claim the remittance basis,
meaning UK tax will be charged on their worldwide income and gains
on an arising basis. The value of their worldwide assets will be
subject to UK inheritance tax at a rate of 40%, subject to certain
Individuals who will be deemed domiciled from 6 April 2017 as a
result of the new '15/20 rule' and those who will not
immediately be caught, but who anticipate long-term UK residence,
are advised to take action now to shelter their foreign income and
gains from UK tax, and to prevent their worldwide assets from
falling within the UK inheritance tax net.
There is a very short window within which action can be
taken to mitigate future liability to UK tax on assets currently
held by UK resident non-doms. Non-doms should consider transferring
assets into an offshore trust before becoming deemed domiciled
Foreign source income and gains can be rolled up within
an offshore trust in a tax free environment, so that tax is only
payable when distributions are made.
For UK inheritance tax purposes, any assets held by an
offshore trust which was established by a non-domiciled individual
are 'excluded property', meaning that the assets held (with
the exception of UK residential property) will not be subject to UK
inheritance tax, even if the settlor subsequently becomes deemed
A trust is a flexible structure which can hold assets on
flexible terms for the benefit of the individual and current and
future generations of his or her family.
Existing offshore trusts
In addition to taking advantage of the current favourable rules
by establishing new offshore trusts before the rules take effect,
existing offshore trusts should also be reviewed to establish
whether any action should be taken prior to April 2017.
Consideration should be given to extracting funds from existing
structures in a tax-efficient manner before the rules change.
Consideration should also be given to splitting existing trusts to
provide flexibility going forward, based on the classes of assets
held and the tax status of the individual beneficiaries. Together
with an individual's onshore advisor, Harneys can review and
amend existing structures as may be required.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Common Reporting Standard (CRS) has been initiated by the Organization for Economic Cooperation and Development (OECD) aiming at improving international tax compliance and preventing tax evasion, through the automatic exchange of information between the countries that implement CRS.
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