Financial advisers versed in tax mitigation will have a chance to prove their worth to their clients when changes come into effect on the status of non-domiciled individuals in the UK.
Under the new arrangements to come into force from 6 April, the existing 17/20 rule for non-doms will be modified so that those who have been a UK resident for 15 of the 20 years will be deemed domiciled for UK tax purposes.
What is more, individuals born in the UK, but who have acquired a domicile of choice elsewhere, will be deemed domiciled in the UK if they are resident in the country.
Individuals deemed domiciled under the new rules will no longer have the benefit of the remittance basis of taxation – the alternative tax treatment for non-doms with foreign income.
Jeremy Mindell, director of Primondell, one of the speakers at the FTAdviser roadshow on tax efficient investment, said: “One thing you [advisers] need to check is that the non-dom has become domiciled in the under the old rules. You could have somebody who is not domiciled in the UK for income tax and capital gains tax purposes but are already domiciled in the UK for inheritance tax purposes under the existing 17/20 years rule.
“Therefore, if you start thinking about trusts for them, they may well have missed the boat – particularly for IHT purposes.”
Another speaker, Marilyn McKeever, associate director of Berwin Leighton Paisner, said the changes would not mean much for individuals like ‘Carlos’ – a typical client non-dom – who arrived in the UK seven years ago and is unsure of the length of his tenure; taxed on remittance basis and holds investments offshore and clean capital – which is income or gains realised before becoming a UK tax resident.
She said: “In general, it is a case of avoid UK investments because if Carlos invests in the UK, it is within the IHT net, income and gains are taxed as they arise, if he invests offshore, then it is outside the IHT net and income and gains only get taxed if they come to the UK.”
Non-doms can live off money in their clean capital offshore bank account in the UK tax-free once they become a UK resident. Clean capital simply refers to income or gains realised before an individual becomes UK tax resident. However, Carlos, and those of a similar ilk could become disgruntled by the lack of capital growth in the clean capital offshore account amid the current low interest rate environment, according to Ms McKeever.
Mr Mindell said: “Non-doms are leaving their investments in a Jersey account, for example, to avoid the remittance base charge.
“They need to think about how many years they will be here for. If they are only going to be here for a few more years, maybe IHT planning should involve something like a term assurance policy.”
Those in Carlos’s position could utilise their offshore clean capital by using it as a security for a bank loan which can be invested in offshore in income and capital gains producing assets, Ms McKeever said.