What to Expect and Possible Solutions
Currently, once a non-domiciled person has been UK tax resident for 17 out of the previous 20 years they will become deemed domiciled in the UK for Inheritance Tax (IHT) purposes only and therefore subject to IHT on UK and worldwide assets.
From April 2017 three fundamental changes will arise:
- A person will become UK deemed domiciled if they have been UK tax resident for 15 out of the previous 20 years.
- Once a person is deemed domiciled for 15 out of 20 years he or she will additionally be subject to income tax and capital gains tax on an arising basis, so the scope of UK taxation therefore increases significantly.
- Returning UK-domiciles will be deemed domiciled immediately on arrival to the UK and therefore unable to claim via the remittance basis.
To set up an excluded property trust subject to the settlor being non-domiciled at the date of settlement and assets being non-UK situs, including shares in a non-UK resident company which can hold UK assets (excluding residential property).
For longer term residents approaching the 17th year, they will need to act quickly before April 2017. New arrivals or those approaching 15 years of residency will benefit from this setup post April 2017.
Benefits will include the ability to avoid immediate income and capital gains tax charges on future income and gains, provided the client does not receive benefits from the trust. Furthermore, the assets will also be excluded for IHT purposes. From 2017, if no trust is set up and therefore assets are held beneficially, the income and gains generated would be taxed on an arising basis even though they arise outside the UK.
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.