Non-doms need help with tax planning

Advisers whose clients are not deemed as UK-domiciled should ensure that any overseas assets do not become liable for UK inheritance tax, Rachael Griffin, financial planning specialist for Old Mutual Wealth, has warned.

She said that potential changes to the domicile rules could mean more foreign nationals becoming deemed UK-domiciled, and their worldwide assets becoming liable to UK IHT on their death.

The warning comes after HMRC issued a consultation report earlier this year restricting non-residents’ entitlement to the personal allowance. This, combined with an election next year, might make wealthy foreigners an easy target to raise more taxes, Ms Griffin added.

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Under current rules, if someone has been in the UK for 17 of the past 20 tax years, they are deemed to be UK-domiciled for IHT purposes, and all worldwide assets will be subject to UK IHT on their death.

This calculation could be amended at any point in the future, and there is some speculation that the number of years could be lowered from 17 to a much lower figure, such as 7 years.

Ms Griffin said: “People who might be affected by a change in the deemed domicile rules should therefore consider taking steps now to protect their assets.

“The speculation around the potential changes may create concern and uncertainty. Moving offshore assets into an excluded property trust now provides the non-domiciled individual with reassurance that their assets will be free of UK inheritance tax on their death.”

Adviser View

Kevin White, head of financial planning for London-based deVere United Kingdom, part of deVere Group, said: “We have seen an increase in the number of wealthy non-dom individuals coming to the UK for work purposes.

“It is our experience that a high proportion of these people do not realise that as soon as they become a resident, not only are their UK assets subject to inheritance tax, but once domiciled everything will be.

“And it could be the case that this important planning issue will not hit people until it is too late to plan in the most efficient manner.

“Many non-doms, and particularly British passport holders with a foreign non-dom spouse, wrongly assume they get the same IHT allowance of £325,000, which is not the case: the non-dom IHT allowance is much lower.”