THE TICKING “RES NON DOM” TIME BOMB

Wealth Management & Private Banking

14 July 2018James Goad

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The new non-domicile rules are now in force and take retroactive effect from April 2017. The latest sets of provisions for non-dom clients are complex. With fears of deterring global investors and an imminent brain drain it is crucial that wealth advisers are ensuring that clients are fully aware of the impact of this legislation and how to ensure they are compliant.

Headlines:

  • Introduction of the domicile rule for all tax purposes - those who have lived in the UK for 15 of the last 20 tax years.
  • For domiciled individuals, clients have the ability to rebase foreign sited assets for capital gains tax purposes.
  • The ability to clean mixed funds for non-dom clients who have previously claimed the remittance basis of assessment.
  • An introduction of Inheritance Tax rules where UK residential property is held within a corporate partnership or trust structure.

Key issues and challenges:

  • The new non-domicile rules are now in force and they take retroactive effect from April 2017. This follows the Finance Act 2017 which is expected to receive Royal Assent
  • The latest sets of provisions for non-dom clients are complex. “There has never been a more important time to provide a bespoke client service program,” said one associate in the session.
  • There are many non-doms clients who may be able to benefit from the cleansing provisions but there needs to be a quick reaction to this, given the complexities of many people's affairs, in order to disentangle what can be cleansed. “Ideally all clients should keep their capital, income and gains separate.”
  •  For client financial planning, these statements allow taxpayers to move ahead ready for the un-mixing of clients’accounts and for those who qualify for the rebasing of foreign assets, to calculate the tax implications of any disposals. “As the deadline is April 2018, the quicker you and your clients start, the easier the “res non-dom” time bomb will be to defuse.”
  •  Meanwhile, distributions from trusts can be made before next April, in order to reduce the gains taxable on UK beneficiaries, by distributing to non-UK resident beneficiaries. “The wealthiest clients are internationally mobile, so it doesn’t matter where they are based. They can take advantage of the next offshore status.”
  • The provisions in relation to income tax and capital gains tax (CGT) are very similar to one another, but some of them come into play retrospectively from April 2017, others from April 2018. The changes affect both individuals and trusts.
  • Equally for trust protections, there should be protection from tax for trusts created by non-dom clients while they are not deemed domiciled (with certain exceptions). “Clients need a big enough pot to make it worthwhile, transitional features are not that helpful.”
  • Foreign income and gains in offshore trusts created by a non-domiciled people are only taxed when distributed.
  • Aside from UK residential property, these trusts still shelter the assets held from inheritance tax (IHT).

Conclusions and solutions:

  • Global clients continue to come to the UK. Clients are identifying enough advantages at the moment currency, fiscal responsibility and prime property prices to name a few.
  • Wealth managers have not seen a ‘brain-drain’ that some businesses were expecting or predicting.
  • These measures have had an important impact on client portfolios. In more complex client situations there will always be examples that cover every aspect of complexity.

 

 

Expert: John Haley, Utmost Wealth                   utmost-wealth-solutions-240-x-120.jpg

Facilitator: Stuart Cummins

 


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