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UK Tax Year-End Planning: Specific Issues for a Non-Domicile to Consider

Private Clients - 25 Feb 2016

For those who will become deemed UK domiciled on 6 April 2016, we strongly recommend taking advice on whether or not to set up and settle funds onto a non-UK trust before then, as otherwise the opportunity will be lost.

Currently, you are deemed to be domiciled in the UK for Inheritance Tax (IHT) purposes if you have been resident here at some stage in at least 17 of the prior 20 tax years, including the current tax year. Anyone who became UK resident at some point during 2000/01 is likely to be deemed to be domiciled in the UK from 6 April 2016.

For non-UK domiciled taxpayers, it is always possible that HMRC will challenge whether you have acquired a domicile of choice in the UK. This can be a complex area weighing up a number of different factors, and if there is not a clear contingency on which you will leave the UK, the positon can be particularly complex. We are happy to discuss this with you and advise ways that your claim to have remained non-UK domiciled can be strengthened as this is fundamental to your UK tax planning.

Remitting Funds to the UK
If you decide to make an EIS investment, Business Investment Relief (BIR) gives you the opportunity to do this without creating a taxable remittance to the UK.

Example | Interaction between EIS and BIR:

  • If you bring £100,000 of foreign income and/or gains into the UK and invest in an EIS company, you can claim BIR relief to avoid tax resulting from the remittance. You then receive a credit of £30,000 to offset against any UK tax liability by making the EIS investment.
  • If your UK tax liability is insufficient to fully utilise the EIS tax credit, you can remit further foreign income/gains from overseas, on which no BIR is claimed, in order to generate sufficient UK tax charge to fully utilise EIS credit. This additional remittance can then be used to help meet your spending needs in the UK, without generating a net tax liability.

US Taxpayers 
Income and gains remitted to the UK, which do not attract special UK tax reliefs, may be eligible for US tax relief to eliminate double taxation.  Therefore, we consider an analysis of the net tax saving, after taking account of double taxation relief, is essential so that an informed investment choice can be made.

Overseas Workdays Relief
If you have an existing nominated account that qualifies under the special mixed fund rules, it may be advisable to open a new account before the first salary payment is paid into it after 5 April 2016.

This can simplify taxable remittances from both accounts, although if you consider this applies to you we recommend you take advice on how this should be implemented in your specific circumstances.

Annual Tax on Enveloped Dwellings (ATED)
The ATED charge applies to UK residential property held by companies and certain other similar structures. From 1 April 2016 the lower limit before it applies reduces to £500,000 based on the value on 1 April 2012. If acquired later, it is proposed that with effect from 6 April 2017 the inheritance advantages of such structures will be removed.

We therefore recommend you take advice as to whether to restructure now or nearer to the 6 April 2017.

‘Collateralised’ Loans
If you have any loans backed by non-UK income or gains which were taken out prior to 4 August 2014, please take advice before any action is taken to change any of the terms of the loan, as this could potentially create a significant taxable remittance.

For further advice and discussion regarding UK tax planning, please either contact your usual Frank Hirth adviser or any of the following:

Justin Cobb
Private Clients Senior Manager
Justin.Cobb@frankhirth.com
Tom Buchan
Private Clients Assistant Manager
Tom.Buchan@frankhirth.com
Manoj Synghal
Private Clients Assistant Manager
Manoj.Synghal@frankhirth.com

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