Dual Qualifying Opportunity

Link: https://www.frankhirth.com/news/dual-qualifying-opportunity
Iain Younger: https://www.frankhirth.com/staff/iain-younger
Phone: +44 (0) 20 7833 3500
Date: Fri, June 24, 2016

For individuals with exposure to the US and UK tax systems, finding tax planning solutions that are effective in both jurisdictions can be extremely challenging.

Although A Generalisation, Both The IRS And HMRC Dislike Two Things:

  1. Anything that is foreign (the dirty word that is ‘offshore’) and;
  2. Anything that allows a taxpayer to defer or avoid a tax charge

Where you are dealing with two separate tax codes, which are both trying to achieve the same thing for their governments, there is going to be immediate tension when trying to create a position of harmony and avoidance of double taxation.

Planning solely for a US tax purpose or just looking at this from a UK perspective simply isn’t going to work given that what is efficient in one country will generally fall foul of the ’foreign’ focus in the other country.

One planning tool that can stand out against this backdrop is the use of dual qualifying life assurance based products, which in the right circumstances can offer rather elegant solutions in a relatively wide range of contexts.

Although specialist advice would be required, such planning can create situations whereby funds could be held within a dual qualifying policy, and kept outside the scope of US or UK taxation until funds are withdrawn. However, even with a withdrawal there may be no tax due if the original planning is carried out correctly and an appropriate fact pattern exists.

Such a policy may also be an optimal vehicle for holding investments that may be considered inefficient if held directly by the taxpayer; here we refer to the penal Passive Foreign Investment Company (PFIC) rules in the US and the Offshore Income Gain (OIG) legislation in the UK.

As you would probably expect, there are certain criteria that must be met in order to ensure the policy is considered to be ‘qualifying’. Restrictions exist that require only certain investment types be held, and that there is a sufficient level of diversity within the investment base.  Any investment manager involved must also have a discretionary mandate rather than an advisory or execution only remit.

In addition, assets such as real estate or family businesses could not be held in such a product.

However, as part of a succession plan the use of the dual qualifying policies could certainly be a viable option. Other contexts in which using such a product should be considered would be planning for short term residence in the US (for non-US citizens and non-Green Card holders).

We are also currently reviewing how such planning may offer advantages for individuals in the UK that have previously benefitted from the remittance basis, but with the changes in the UK becoming effective from April 2017 they will no longer be able to take advantage of such protection.  A policy could be an effective tool to protect non-UK assets from the arising basis of taxation in the UK.

As detailed above, this is a planning tool that will not suit everyone but we would be happy to review your situation and consider the possible options.

Specialist advice and implementation of any plan would be required and we would be happy to make introductions to appropriate advisors.  Given the necessity in many cases for the product to be dual qualifying in the US and UK, this is not something that would be available on the ‘high street’ and the wrong type of policy could be extremely damaging to any planning, undermining the overall intentions.

If you would like to discuss this further please do not hesitate to reach out to your Frank Hirth contact


This article has been written for the general interest of our clients and contacts to stimulate further thought and enquiry. It does not contain answers to specific situations and it is therefore essential to treat it as a prompt to take specific advice on any real and particular issues. We believe that the facts as summarised in this article are correct as at the time of going to press in June 2016. If we discover that the article might be read in a way that conveys a misleading impression (whether by tone, content, error or omission) we will make the necessary changes and draw attention to what has been changed once we become aware of the need to do so. We will not be responsible for any action taken by a reader who relies on the article but does not seek further advice to answer any specific query.

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