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Non dom tax changes (6) – A summary of actions and planning ideas

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Non dom tax changes: A summary of potential actions and planning ideas

Updated for Finance Bill 2017

This final note will summarise what we believe the key action points are in relation to the non dom tax changes:

Non dom tax changes: Actions prior to 6 April 2017

Capital gains tax (“CGT”)

  • Assess whether you or your client be deemed domiciled from 6/4/17 under the new rules?
  • Where relevant, and ahead of the temporary window spanning 2017/18 and 2018/19, we would recommend preparing mixed fund accounts. This will maximise the time to take advantage of the window to separate out such funds.
  • You should consider as early as possible whether the CGT re-basing applies for you or for your client? If not, can steps be taken to ensure that it does?
  • If rebasing does not apply, then can steps be taken to trigger a friendly sale resulting in a similar outcome?

Income tax

  • Assess whether you or your client be deemed domiciled from 6/4/17 under the new rules?
  • Where relevant, and ahead of the temporary window spanning 2017/18 and 2018/19, we would recommend preparing mixed fund accounts. This will maximise the time to take advantage of the window to separate out such funds.

Trusts

  • Consider whether it is advantageous and appropriate to make payments to non doms prior to the new rules taking effect from 6 April 2017;
  • Consider whether capital gains can be washed out with payments to non-resident beneficiaries prior to 6 April 2017
  • See Inheritance tax below re potential steps where a trust has UK residential property which is currently excluded property

Inheritance tax (“IHT”)

  • For non doms who are not yet deemed domiciled for UK IHT purposes, one should revisit the date on which they will become deemed domiciled as this is likely to have been accelerated;
  • It is still possible for an individual who is not yet deemed domiciled to create excluded property trusts. Therefore consider whether this might be beneficial. However, consider whether this might have an adverse effect on the availability of rebasing for CGT purposes if assets currently held personally;
  • If currently excluded property then this is unaffected to the extent that this does not comprise UK residential property.
  • If UK residential property, consider whether this can be efficiently decanted to an alternative structure such as a QNUPS. A QNUPS, for instance, will be protected from IHT by its own statutory exemption. This should not create any issues with the TAAR.
  • If one is a returning or former non-dom then one should carefully consider your affairs!!!

Non dom tax changes: Actions and planning on or after 6 April 2017

Capital gains tax (“CGT”)

  • Seek to ‘cleanse’ mixed fund accounts in the 2017/18 and 2018/19 tax years based on the fund accounts compiled (See above)

Income tax

  • Seek to ‘cleanse’ mixed fund accounts in the 2017/18 and 2018/19 tax years based on the fund accounts compiled (See above)

Trusts

  • Protected trusts will provide gross roll up of foreign income and gains
  • Take care not add any property to ‘protected trusts’
  • Take care to whom payments or benefits are paid and their form as, again, this may prejudice protected status

Inheritance tax (“IHT”)

  • Where the individual is not yet deemed dom then monitor the situation and consider whether creating excluded property is appropriate
  • (2) If UK residential property – consider other structures

Of course, this is not a detailed or exhaustive list. As such, one should monitor the developments in the legislation and should obtain specialist advice.

Conclusion

We started this series of articles on the non dom tax changes with a little history. History in the sense that it was William Pitt the Younger who introduced income tax and the remittance basis of taxation.

Apparently, he was also rather fond of a drink or two. This meant that he suffered from chronic gout. Unfortunately, this lead to Mr Pitt self-medicating copious quantities of port!

This highlights the dangers of doing it yourself. If you, or your Clients, have any queries regarding the non dom tax changes or need help planning their affairs within this short time frame, then please do not hesitate to get in touch.

Related articles:

Part one: Setting the scene and what is domicile?

Part two: The income tax and CGT changes (including rebasing, mixed fund rules and Business Investment Relief)

Part three: The Inheritance Tax (“IHT”) changes (including revisions to excluded property)

Part four: Returning non-doms – a tax pariah?

Part five: The changes in relation to trusts

Part six: A summary of actions and planning ideas

 

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