Major taxation changes ahead for non-uk domiciliaries are you prepared for 6 April 2017?

Transcription

1 Major taxation changes ahead for non-uk domiciliaries are you prepared for 6 April 2017? February 2017

2 The current position UK assets UK Income Tax UK CGT UK IHT RND client Non-UK assets Remittance Basis Charge UK IHT after 17 out of 20 years of UK tax residence Remittance Basis Charge: Years Charge (7/9) 30, (12/14) 60, plus (17/20) 90,000 UK Income Tax and CGT if Foreign Income and/or Gains are brought to the UK NB Statutory Residence Test

3 The changes from 6 April 2017 new rules RND client UK assets UK Income Tax UK CGT UK IHT Non-UK assets Remittance Basis Charge After 15 out of 20 years of UK tax residence, deemed-domiciled: UK IHT UK CGT UK Income Tax Remittance Basis Charge: Years Charge (7/9) 30, (12/14) 60, plus (15/20) Unavailable NB Statutory Residence Test

4 Re-basing overseas assets An opportunity for UK RND clients to uplift their personal (i.e. not trust or company) foreign assets to market value at 5 April 2017 a concession to soften the blow of the changes Only available where the following criteria are met: 1. Assets not situated in the UK within the relevant period (16 March 2016 or if later date of acquisition to 5 April 2017) 2. The individual is a qualifying individual (one who has made a claim to be taxed on the remittance basis and has paid the remittance basis charge in a tax year before 2017/18. A qualifying individual cannot have been born in the UK with a domicile of origin in the UK) 3. The individual is not able to access the remittance basis of taxation from 6 April 2017 The re-basing is automatic (an election must be made in order to dis-apply and this must be made within 4 years of the end of the tax year in which the relevant disposal was made) Most recent update (26 January 2017) those offshore funds subject to capital gains tax (CGT) and income tax treatment on disposal will benefit from re-basing

5 Mixed funds (income/capital) Clean capital typically pre-arrival cash and assets acquired before arriving to the UK, taxed UK income and/or gains, inheritances and gifts Mixed fund an overseas fund of money and/or other property which is comprised of more than one type of income and/or gains (or income and/or gains of other years) The legislation deems that broadly, untaxed foreign income/or gains are brought to the UK in preference to non-taxable capital An opportunity for RND clients to re-organise mixed funds in order to access historic clean capital in a tax efficient manner practically this allows the individual to segregate away historic clean capital from an existing mixed fund Available to ALL historic remittance basis users

6 Mixed funds (income/capital) cont d The opportunity is available for the 2017/18 and 2018/19 tax years Funds will need to be encashed but there will be a strict process advice is essential The industry needs to understand how the legislation will work in practice

7 Re-basing and the mixed fund cleanse You and your client Pierre, are reviewing his historic investment portfolio in advance of Pierre becoming deemed-dom at 6 April 2017 Step 1 identify historic clean capital comprised within the portfolio Step 2 re-base assets (remember elect for losses) Step 3 encash the relevant assets Step 4 extract clean capital to separate accounts (NB additional clean capital created by the re-basing) Step 5 clean capital now available to transfer to the UK or manage with a view to retaining its clean nature Step 6 remaining non-clean funds re-invested into non-uk situated assets 10 million mixed fund 7.5m 0.5m 2m Clean Capital Income Gains

8 Portfolio management and offshore bonds Importance of portfolio management thinking like a resident and domiciled individual Reporting funds subject to CGT rates (i.e. 20%) rather than marginal income tax rate (20%/40%/45%) Review to identify existing non-reporting funds in portfolio consider re-basing position and potential conversion to reporting fund based investments Offshore bonds: Investment return Tax deferral Retention of clean capital created by mixed fund cleanse Gains chargeable to income tax (not subject to the remittance charge) Controlling the tax charge Personal Portfolio Bonds issues with policyholder directed investment, though permitted property and indices exemption

9 IHT and excluded property trusts (EPTs) Opportunity remains for clients not yet deemed-domiciled under current rules before, or after, 6 April 2017 UK assets UK Income Tax UK CGT UK IHT Non-UK assets in EPT Outside the scope of UK IHT Gross roll-up Trust Non-UK Company RND client UK Income Tax/CGT if the settlor receives a benefit from the trust Non-UK assets NB Statutory Residence Test

10 Excluded Property Trusts a comparative Settlor Interested Non-settlor Interested Current position Post 6 th April 2017 Current position Post 6 th April 2017 Foreign income within the trust Subject to remittance basis election Non-taxable Non-taxable Non-taxable Foreign gains within the trust Non-taxable Non-taxable Non-taxable Non-taxable Assets in estate for IHT purposes No No No No Tax on benefits from trust Yes, though note remittance basis Yes, though note remittance basis Yes, though note remittance basis Yes, though note remittance basis Settlor taxed on benefits paid to close family members - Yes - No = Good news! Note: the above comparative tables are not applicable where there are direct/indirect interests or loans relating to UK residential property

11 Owning UK residential property Existing structures changes from 6 April 2017: the complex interaction of relevant taxes means there is no one size fits all solution broadly, any interest in UK property held by a company (shares/loan/partnership) will be within the scope of IHT Note most partnership interests were already in scope though perhaps HMRC wished to remove any doubt here The new regime will most typically apply to the following scenarios: UK residential property held via non-uk company structures UK residential property held via non-uk company structures under a trust loans made by individuals used by other parties to fund acquisition of residential property though note loans of this type may already have been in scope

12 Owning UK residential property cont d Matters to consider pre April 2017: restructuring pre April 2017 disposals pre April 2017 distributions life assurance succession and privacy Acquisitions of residential property from 6 April 2017: debt insurance