,

South Africans in these 16 jobs could now have a ticket to the UK

Businesstech – 7 March 2018

The UK has seen a dramatic fall in net-migration, driven equally by the increased number of EU citizens leaving the country after the Brexit referendum, and the decreased number of international immigrants moving to the UK.

At the same time unemployment in the UK is down to a 42-year low of 4.3%, making it difficult to find workers in most regions in the UK.

Businesses across Britain are now short of employees across many sectors, ranging from minimum wage workers to those in leadership positions. To try lure new hires, employers are having to increase wages.

According to Sable International emigration consultant, Philip Gamble, not only are there a wide range of positions open in the UK, but wages and salaries are on the up and it looks as if this is going to continue for the foreseeable future.

“If you’re a skilled individual interested in moving to the UK this should be music to your ears,” he said.

According to Gamble, the most popular visa that allows you to work and live in the UK is the Tier 2 (General) visa, often referred to as a UK work permit.

“This visa allows you to live and work in the UK for a maximum of five years and 14 days. To get one you’ll first need a job offer for a skilled position in the UK,” he said.

“The UK Shortage Occupation List details the jobs for which there is a shortage of workers in the UK.

“If your occupation is on the list, it will be far easier for you to find a job in the UK and to get a UK work permit.”

You can find the full Shortage Occupation list here, but Gamble set out some of the more popular occupations on the list:

Engineers
IT and communications professionals
Programmers and software development professionals
Health professionals
Nurses
Actuaries
Economists
Statisticians
High school teachers
Social workers
Paramedics
Welders
Animators
Dancers and choreographers
Graphic designers
Chefs

The first step is to apply for a job in the UK, Gamble said.

“The company you are applying to will need to be a registered organisation, which means they are licensed to sponsor migrants for Tier 2 (General) visas. If you’re unsure of where to begin looking for a position, a quick search of relevant UK career sites will bring up a number of vacancies.

“Once you have gone through the job application process and have received a formal job offer, you can start the visa application process. Your employer will issue you with a Certificate of Sponsorship (COS) once you have been offered the position. You will use your unique COS number when applying for your Tier 2 (General) visa.”

Points-based visa system

The Tier 2 (General) visa works on a points-based system, and you will need to obtain 70 points to be eligible.

This is a breakdown of the required points:

30 points for having a valid job offer from a registered Tier 2 sponsor (Certificate of Sponsorship).
20 points for an offer of a minimum salary of £30,000 (depending on your occupation).
10 points for having at least £945 available to you.
10 points for meeting the English language requirement.

“If you have 70 points, you meet all the requirements and your application is done in the correct way, you should receive your visa within eight weeks of your application,” said Gamble.

UK non-dom retrospective action confirmed

Publication: Changes for non-UK domiciliaries

17 November 2017

Finally, the new non-domicile rules are now in force and it is confirmed that they take retroactive effect from 6 April 2017. This follows the Finance (No. 2) Act 2017 receiving Royal Assent on 16 November 2017.

As a brief summary, for non-UK domiciliaries and offshore trusts, the main changes that took effect from 6 April 2017 are as follows:

The introduction of the deemed domicile rule for all tax purposes for those who have lived in the UK for 15 of the last 20 tax years
The ability to rebase foreign sited assets for capital gains tax purposes for those deemed domiciled individuals
Specific measures for those born in the UK with a UK domicile of origin to treat them as UK domiciled
The ability to cleanse mixed funds for all non-doms who have previously claimed the remittance basis of assessment
Certain protections for offshore trusts as well as tainting provisions
The introduction of ‘look through’ Inheritance Tax rules where UK residential property is held within a corporate, partnership or trust structure.

A number of further proposals, such as anti-conduit rules involving offshore trusts, are expected to be enacted in ‘Winter’ Finance Bill 2017-2018 with a view to introducing them from 6 April 2018 once that receives Royal Assent. While this should ultimately provide more clarity, unfortunately, it adds a further layer of complexity for the 2017/18 tax year as trustees and their beneficiaries will now need to take into account two sets of rules when deciding whether and when to make a distribution or take benefits from an offshore trust.

Whilst these announcements represent mixed news, particularly the retrospective nature of the changes, it does finally allow taxpayers to proceed in earnest in readiness for the un-mixing of their accounts and for those who qualify for the rebasing of foreign assets, calculate the tax consequences of any disposals. Guidance on the practical application of the rules is expected in due course.

https://www.bdo.co.uk/en-gb/insights/tax/private-client/tax-changes-for-non-uk-domiciliaries

UK – Non-doms pay £9bn in tax, say latest HMRC figures

Non-domiciled taxpayers in Britain paid more than £9bn to the Exchequer in 2014/15, an increase of 1 per cent from the previous financial year.

Figures released by HMRC yesterday show that 121,300 listed non-doms paid £9.3bn of income, capital gains tax and national insurance.

HMRC has never before released such data about non-doms, according to The Times.

The Government department says 85,400 of the registered non-doms were UK residents in 2014/15, meaning each paid roughly £105,000 in tax.

Non-doms in London and the southeast paid 86 per cent of all this tax.

However, only 5,100 non-doms paid the remittance charge levied on those who have lived in Britain for at least seven years.

In April the Government ended permanent non-dom status for anyone who has lived in the UK for at least 15 out of the past 20 years.

Non-doms are UK residents who claim a different domicile, meaning they pay no tax on this non-UK money unless it is brought into the country.

Help UK non-dom with IHT

They say change brings opportunity, so the optimists among you can rejoice (maybe) because, thanks to the present government, a whole new range of clients need your advice (perhaps)
Why the equivocation? Well, until recently, it seemed certain that changes affecting the taxation of non-UK domiciliaries (non-doms), which were included in the March 2017 version of the Finance Bill 2017, would come into effect on 6 April 2017, as planned.
Then the election was announced. Suddenly the imperative was to get a semblance of the Finance Bill onto the statute books before parliament dissolved.
Something had to give and that something, among other things, was the removal of all the proposed non-dom tax changes legislation.
However, the government has confirmed its intention to bring forward the same provisions in a new Finance Bill, should it be returned to power; so if there has been a reprieve, it may be only temporary.
In fact, the prevailing view is the reprieve is illusory because the reintroduced provisions will have retrospective effect from 6 April 2017.
There will shortly be a real need for advice to reassure non-doms that they can invest into the UK without losing 40 per cent of their investment to IHT.
And therein lies the opportunity, because the new law would see all non-doms liable to inheritance tax (IHT) on their UK residential property.
When are non-doms exposed to IHT?
Generally speaking, non-doms are only exposed to IHT on their personally held UK situated assets. In addition, every non-dom benefits from the IHT nil rate band, meaning that currently no IHT is payable on the first £325,000 of UK situated assets on death, assuming no lifetime gifts of UK situs assets.
UK residential property is a UK situs asset, of course, but in the past, non-doms wishing to own UK residential property would simply purchase it through an offshore company.
By interposing the company between themselves and the UK property, their ownership was of the shares of the offshore company – a non-UK situs asset not liable to IHT – and so, on the non-dom’s death, the UK property passed free of IHT to the next generation.
What about long-term UK resident non-doms?
The position of long term UK resident non-doms is slightly different. Once they had been resident in the UK for 17 out of the past 20 UK tax years (the new rules propose a reduction to 15 out of the previous 20 UK tax years), they become deemed UK domiciled for IHT purposes, regardless of what their actual domicile is.
Ignoring old estate duty double tax conventions, which can save the day in a few limited circumstances, deemed UK doms are liable to IHT on their worldwide, personally held assets.
Non-UK situated assets held in offshore trusts where the trust was created, and the transfer occurred, prior to deemed UK dom status starting, continued to be sheltered from IHT.
Offshore companies
If the government’s changes come to pass, the use of offshore companies to own UK residential property will no longer provide an IHT shelter. This will be the case for all non-doms, regardless of whether they are UK resident or not, or are deemed UK domiciled or not.
An interest in 5 per cent or more of a closely held offshore company, or partnership, which in turn owns, directly or indirectly, an interest in UK residential property of any kind, would be liable to IHT in the hands of the owner.
Further, any loan to or collateral given to another to enable that other to acquire UK residential property will also be a chargeable asset for IHT purposes.
Whole new band of IHT payers
If the changes are made, it seems that a whole new band of IHT taxpayers will be created – residential property owning non-doms.
Many will come from jurisdictions which do not impose an estate or inheritance tax on death and will have no idea of the complexities of the IHT legislation – the IHT implications of making gifts with reservation of benefit (GROBs), for example.
Hence, if the changes are made, there will shortly be a real need for advice to reassure non-doms that they can invest into the UK without losing 40 per cent of their investment to IHT.
What sort of solutions might work?
Many of the IHT planning solutions currently used by UK doms will be of equal importance to non-doms.
If these IHT changes come into effect, individuals are likely to start purchasing new UK residential property in their own names, rather than through an offshore entity, or removing existing properties from offshore structures into personal ownership.
Some may work on the basis of selling their UK real estate before death is likely but they may not be familiar with using term life cover written in trust to cover the IHT risk.
Married couples, both of whom have a non-UK domicile, can also take advantage of the generous, 100 per cent IHT spouse exemption on death.
Writing a UK will, ensuring that UK residential property passes to the surviving spouse after the first death, either outright or in a will trust giving the surviving spouse a life interest, will defer the IHT until the second death.
If the surviving spouse sells the UK property and moves the proceeds abroad before their death, IHT may be legitimately avoided altogether.
Non-doms need to be made aware that gifts of UK residential property in lifetime, perhaps to the next generation, could have IHT implications if the gift is not survived by seven years. Again, term life cover may have a role to play.
However, the IHT legislation disapplies, the GROB rules in certain situations where gifts of shares of property are made.
A time when both UK doms and non-doms need high quality IHT planning advice may soon be upon us.
Helena Luckhurst is a Partner at Fladgate LLP
Helena Luckhurst

UK – Non Doms Tax – Where are we now?

HMRC first began consulting on the reform of the taxation of long-term UK resident non doms in 2015. Legislation was originally intended to be included in the first Finance Bill of 2017 but this was shelved due to lack of parliamentary time as a consequence of the June 2017 general election. Most, but not all, of the amended legislation is comprised in a Bill before Parliament which is expected to pass into law when it receives Royal assent in November 2017.
Non doms tax: Remittance basis – before and after

Until 6 April 2017, all UK resident non-doms could elect to be taxed on the remittance basis on their non-UK income and capital gains. This meant that they were only taxed on non-UK income and gains to the extent that they brought them into, or otherwise enjoyed them in, the UK. However, to access the remittance basis, it was necessary in certain circumstances to pay the Remittance Basis Charge. No charge was payable in the first 7 years of UK residence but if you had been resident in the UK for more than 7 years out of the preceding 9, the charge was £30,000, if resident for 12 out of the preceding 14 years or for more than 15 out of the preceding 20 years, the charge was £60,000 and if you had been resident in 17 out of the preceding 20 years the charge was £90,000.

With effect from 6 April 2017, only UK resident non-doms who have been UK resident for 15 or fewer years in the preceding 20 years can claim the remittance basis. It remains the case that no charge is payable in the first seven years of UK residence and if you have been resident in the UK for more than 7 years out of the preceding 9, the charge is still £30,000, but the £60,000 charge is payable only if you have been resident for 12 years out of the preceding 14 years.
Non doms tax: Individuals born in the UK and having a UK domicile of origin

However, there has been an additional change which does not merely affect long-term UK residents, but any individual who is currently not domiciled in the UK but was born in the UK with a UK domicile of origin and subsequently becomes resident in the UK.

Such a person will now be treated as deemed UK domiciled for all tax purposes for any year in which he or she is UK resident. This will mean that individuals who were born in the UK but have ceased to be UK domiciled – perhaps because their parents emigrated during their childhood – will be treated as deemed UK domiciled as soon as they become UK resident.

This in turn means that multinational employers who post to the UK non-UK domiciled employees who were domiciled in the UK at birth, may immediately expose them to UK deemed domicile. One effect being that they will receive no relief from UK tax on their overseas earnings, and another being that any non-UK assets they may have may immediately come within the UK inheritance tax net.
Do you have a question about non doms tax? Click>
Non doms tax: Rebasing of personal assets

Individuals who become newly deemed domiciled for income tax and capital gains tax (CGT) purposes as a consequence of the new rules will be entitled to rebase their foreign assets to market value at 6 April 2017, provided certain conditions are met.

The rebasing relief applies only to personally held assets and not to assets held in other structures, e.g. trusts and companies.

Rebasing relief may apply if the assets were held for the period from 16 March 2016 to 6 April 2017, but only if the individual had paid the remittance basis user charge in any year prior to 2017/18. It should be noted that there is a 4-year time limit to make a claim for the remittance basis. It is by no means too late to do so if the cost is justified by any savings from rebasing relief.
Non doms tax: Protected Settlements

It has been common for many years for non-UK domiciled individuals to create settlements to hold offshore assets either before they arrived in the UK or at some point before they became domiciled in the UK for inheritance tax purposes under the old 17-year rule.

As mentioned above, it will not be possible to rebase assets to market value if they are held within a trust, even one settled by a non-dom who becomes deemed dom on 6 April 2017 under the new rules.

In the absence of specific rules, deemed domiciled settlors will pay tax on trust income and capital gains as they arise unless they are excluded from benefiting from the trust assets, which is rarely the case.

The current Finance Bill introduces the concept of “protected settlements”. The new rules provide that the settlor of a protected settlement will not pay capital gains tax on chargeable gains or suffer an income tax charge on foreign income arising to a non-UK resident settlement if that settlement meets the relevant conditions. The trust’s UK source income will remain taxable in the UK on the settlor as previously.

Protected settlement status can apply only for as long as the settlor is deemed domiciled but not otherwise domiciled in the UK. In other words, protected settlement status for income tax and capital gains tax purposes will be lost if the settlor acquires a UK domicile of choice.

Protected settlement status will apply to any offshore trust settled by a non-dom before 6 April 2017 for any year from 2017-18 if the settlor is not otherwise UK domiciled. If a UK resident settlor becomes UK domiciled for any other reason, for example by acquiring a UK domicile of choice, protected settlement status will be lost.

Protected settlement status does not apply to trusts where the settlor is an individual who was born in the UK and had a UK domicile of origin at his or her birth.

Protected settlement status will also be lost if the trust is ‘tainted’. A settlement will cease to be a protected settlement if there is any addition of property to the settlement, either by the settlor or by the trustees of any other trust of which the settlor is a settlor or beneficiary in any tax year after 2016/7.

Non doms tax: Mixed funds

Once a non-dom’s clean capital, income and gains (or any combination) have become “mixed funds”, e.g. by being paid into the same bank account or being used to acquire a new asset, they cannot be segregated subsequently. This means that when mixed funds are remitted to the UK, the tax rules apply in a manner that ensures that the greatest tax liability arises at the earliest possible time.

There will be an opportunity during the 2017/8 tax year for newly deemed doms to “cleanse” mixed funds by reorganising bank accounts and other assets representing mixed funds into their constituent elements, if they have at some time paid the remittance basis user charge. This could be a complicated and time-consuming exercise in some instances and it is essential that there is sufficient detail in the financial records to make that exercise possible.

https://www.enterprisetax.co.uk/non-doms-tax/
London: 020 3705 8320
info@enterprisetax.co.uk

UK – Changes to non-dom tax legislation

Changes to non-dom tax legislation: two Finance Bills in five days, September 2017
Changes for Non-UK Domiciliaries: Summer and Winter Finance Bills 2017

15 September 2017

After a further period of uncertainty, with the removal of the draft legislation affecting the taxation of non-UK domiciled individuals from the March Finance Bill 2017, followed by the extraordinary General Election and repercussions that now brings, the Government have now published a second Finance Bill 2017 reintroducing the removed provisions. This is confirmation that they will be effective from the original commencement date of 6 April 2017.

Although there had been some call for these rules to be delayed, the publication of this second Finance Bill confirms that the Government’s project to reform the tax rules for non-UK domiciled individuals (non-doms) will finally now be implemented.

As a brief summary, the changes due to be brought in are as follows:

The introduction of the deemed domicile rule for all tax purposes for those who have lived in the UK for 15 of the last 20 tax years
The ability to rebase foreign sited assets for capital gains tax purposes for those deemed domiciled individuals
Specific measures for those born in the UK with a UK domicile of origin to treat them as UK domiciled
The ability to cleanse mixed funds for all non-doms who have previously claimed the remittance basis of assessment
Certain protections for offshore trusts as well as tainting provisions
The introduction of ‘look through’ Inheritance Tax rules where UK residential property is held within a corporate, partnership or trust structure.

There have been some technical changes made and a welcome clarification around the ability to un-mix pre 6 April 2008 funds, as well as confirmation that the IHT charges in relation to loans provided for the purchase of residential property, or guarantees given, will be limited to the value of the loan.

A number of earlier proposals which did not make the March and ‘Summer’ Finance Bills, such as anti-conduit rules involving offshore trusts, have re-appeared with some adjustments to be enacted in ‘Winter’ Finance Bill 2017-2018 with a view to introducing them from 6 April 2018. While this should ultimately provide more clarity, unfortunately, it adds a further layer of complexity for the 2017/18 tax year as trustees and their beneficiaries will now need to take into account two sets of rules when deciding whether and when to make a distribution or take benefits from an offshore trust.

Whilst these announcements represent mixed news, particularly the retrospective nature of the changes, it does finally allow taxpayers to proceed in earnest in readiness for the un-mixing of their accounts and for those who qualify for the rebasing of foreign assets, calculate the tax consequences of any disposals. However, they are still advised to await final legislation and HMRC guidance as to how the cleansing rules will operate in practice before going ahead with making actual transfers from a mixed fund.
The second Finance Bill of 2017 was published on 8 September 2017. This confirms that all policies originally announced to start from 6 April 2017 will be effective from that date, including the non-dom tax changes. Whilst the legislation is still only draft, we expect it will be enacted quickly, ahead of the Autumn Budget on 22 November 2017.

Further draft legislation that will form part of a third Finance Bill was published on 13 September 2017 in relation to recycling benefits from offshore trusts via non-resident beneficiaries and the tax treatment of distributions to close family members of the settlor. These provisions will be effective from 6 April 2018.

The publication of this draft legislation does seem to provide much needed certainty, though the Autumn Budget might introduce further changes.

This briefing summarises our understanding of the changes affecting UK resident non-domiciled individuals and offshore trusts.

Provisions taking effect from 6 April 2017

Returning non-doms

Individuals who were born in the UK with a UK domicile of origin but who later acquire a domicile of choice (returning non-doms) will be treated as domiciled in the UK as soon as they become resident in the UK. Trusts created whilst a returning non-dom was non-domiciled will be treated as if created by a UK domiciled individual.

Those who may be affected by these rules should take advice immediately as their tax position may have changed significantly and they will not benefit from some of the reliefs available for those who are deemed domiciled under the long-term non-dom rules.

Long-term non-doms

From 6 April 2017, individuals who have been resident in the UK in 15 out of the previous 20 years will be deemed to be UK domiciled (deemed-dom) for income tax, capital gains tax and inheritance tax purposes.

Non-dom individuals with less than £2,000 of unremitted income and gains will continue to be automatically entitled to the remittance basis of taxation even once they are deemed-dom.

Capital gains tax rebasing

The rebasing will only be available to individuals who became deemed-dom from 6 April 2017 and who have paid the remittance basis charge at least once (a qualifying individual). Returning non-doms cannot be qualifying individuals.

The asset being rebased must have been owned by the individual on 5 April 2017 and must not have been situated in the UK during the period from 16 March 2016 to 5 April 2017. There appears to be no requirement that the individual owned the asset (a qualifying asset) throughout this period.

The rebasing will apply automatically to qualifying assets sold by a qualifying individual on or after 6 April 2017, although an election may be made to disapply the rebasing.

Segregating mixed funds

There will be a two-year window from 6 April 2017 for non-doms to segregate their mixed funds.

Only funds held in bank accounts by individuals can be segregated; other assets will need to be realised into cash before segregation. The opportunity will be available to all non-doms who have used the remittance basis before 6 April 2017 (other than returning non-doms).

There are additional provisions regarding the position for individuals who have unremitted foreign income and gains from before 6 April 2008. It will be possible to segregate pre-2008 income and capital gains and there are specific rules about how pre-2008 transfers should be dealt with.

However, there is still little guidance on how the segregation of funds (both pre and post-2008) should be done in practice, or how nominations should be made.

Foreign capital losses

Foreign capital losses realised after an individual becomes deemed-dom will be allowable against all capital gains, even if an election under s16ZA TCGA 1992 has not been made.

Temporary non-residence

Foreign chargeable gains arising to an individual who became non-UK resident prior to 8 July 2015 (ie when the non-dom changes were announced) and then returned to the UK within five years, will not be subject to the temporary non-residence rules if the individual is deemed-dom in the year of return.

Protections for foreign settlor-interested trusts

The protections will apply to all foreign settlor-interested trusts set up by non-dom individuals (whether deemed-dom under the new rules or not), except returning non-doms. These protections will make non-resident trusts very attractive for many non-doms, including those who are currently paying the remittance basis charge, as income and gains may be rolled up in such trusts without the need to claim the remittance basis and pay the remittance basis charge.

Capital gains tax protection for foreign settlor-interested trusts

There will be a capital gains tax protection for foreign trusts established before the settlor became deemed domiciled. Without this protection, deemed-dom settlors would be subject to capital gains tax on trust capital gains as they arise. Instead, capital gains will only be taxable to the extent that they can be matched to benefits received from the trust.

Income tax protection for foreign settlor-interested trusts

There will be similar income tax protections for foreign trusts established before the settlor became deemed domiciled. Existing provisions, which deem trust income to belong to the settlor, will no longer apply in respect of foreign income at both the trust level and in any underlying corporate entities. Therefore, the settlor will only be subject to income tax by reference to benefits received by him/her which are matched to income. In addition, a settlor may be taxed in respect of income matched to benefits received by close family members.

The settlements legislation and transfer of assets abroad provisions will still apply to UK source income arising to settlor-interested trusts and their underlying companies. UK resident settlors will therefore be taxed on such income as it arises and there will be no protection.

The transfer of assets abroad provisions will still apply to all income arising to non-UK companies which are not held by a protected trust. This will also be the case where a company is held partly by a trust but there is an individual shareholder or loan participator. UK resident shareholders/loan participators will therefore be taxed on such income as it arises (for deemed-dom individuals) or when remitted (for remittance basis users).

Transitional rules

Undistributed foreign income and unmatched foreign gains arising before 6 April 2017 will be available to match to benefits received after 5 April 2017 by all beneficiaries, including settlors.

Unmatched capital benefits received by the settlor before 6 April 2017 will be carried forward to match to capital gains arising after 5 April 2017. Such unmatched capital benefits will not be matched to income.

Unmatched capital benefits received by beneficiaries other than the settlor before 6 April 2017 will be matched to income or capital gains arising after 5 April 2017. Income retained by a trust or underlying company which has been taxed on the settlor (eg because it was remitted to the UK by the trust or company) will not be matched to future benefits and therefore not taxed again.

Tainting protected settlements

The capital gains tax and income tax protections for trusts will not be available if the trust is tainted.

Where property is added (directly or indirectly) to a trust by the settlor after he becomes deemed domiciled, it will become tainted and the capital gains tax and income tax protections will no longer be available. In addition, this protection will be lost if property is added to a trust by the trustees of a second trust and the settlor of the first trust is the settlor or a beneficiary of the second trust.

Property transferred to a trust as a result of an arm’s length transaction will be ignored. However, loans made to a trust which are not on arm’s length terms (eg which are interest free) may lead to the protections being lost.

Valuing trust benefits

The government has confirmed that new rules on valuing certain benefits from trusts will apply from 6 April 2017. Statutory methods of valuation will cover loans made to beneficiaries, the use of movable property including artwork, and the use of land including residential properties.

Excluded property for inheritance tax

Non-UK situs assets held by trusts set up before an individual is deemed-dom for inheritance tax will remain outside the scope of inheritance tax, subject to the new rules regarding UK residential property held through overseas companies.

Carried interest

Where gains are taxed on an individual under the carried interest rules, they will not also be matched to benefits received from a trust. However, when the proceeds of such a gain are distributed by the trust, they may still be matched to other capital gains realised in the trust.

Provisions taking effect from 6 April 2018

The changes which will take effect from 6 April 2018 relate to how income and gains in offshore trusts are taxed when beneficiaries receive capital payments. These rules had previously been announced in December 2016 as part of the consultation into the changes to the taxation of non-doms. However, they were not included in the first Finance Bill, published in March 2017.

Capital payments received by non-resident beneficiaries

Capital gains will no longer be matched to capital payments received by non-resident beneficiaries. This means that it will not be possible to ‘wash out’ capital gains from a trust by making distributions to non-resident beneficiaries. This is already the case for trust income. In addition, capital payments will be disregarded if they are made to a beneficiary who is UK resident when they receive the payment but become non-resident before the payment is matched to a capital gain.

An exception to these provisions is where a capital payment is made to a beneficiary who is temporarily non-resident (ie non-resident for a period of less than five tax years). Such individuals will be deemed to have received the capital payment in the year they return to the UK.

Another exception is in the year a settlement ends when distributions to non-residents will be matched to capital gains.

Capital payments received by close family members of the settlor

Where the settlor of a trust is resident in the UK during a tax year and a capital payment is made in that tax year to a beneficiary who is a close family member of the settlor, the capital payment is treated as being made to the settlor. These provisions apply to both income tax and capital gains and will have the effect that the settlor is taxed on any income or capital gains matched to the capital payment. These rules apply to income from 6 April 2017 but will be extended to capital gains from 6 April 2018.

For income tax purposes, the settlor will only be treated as the recipient of the capital payments if the actual recipient is either not resident in the UK or is a remittance basis user. For capital gains tax purposes, the settlor will be treated as having received the capital payment regardless of whether, in the absence of this provision, the actual recipient would have been subject to tax in respect of the capital payment.

For these purposes, a close family member includes the settlor’s spouse, civil partner, cohabitee or minor child (of the settlor or their spouse/civil partner/cohabitee). Minor grandchildren are not close family members for these purposes.

Onward gifts

If a beneficiary receives a capital payment from a trust which is not taxable and they make an onward gift, the subsequent recipient will be treated as having received the capital payment. These provisions apply to both income and capital gains and may have the effect that the subsequent recipient is taxed on any income or capital gains matched to the capital payment.

In order for these provisions to apply, the following criteria must be met:

The original beneficiary is either not resident in the UK or is taxed on the remittance basis and does not remit the capital payment.
The above provisions in respect of capital payments to close family members of the settlor do not apply.
The subsequent recipient is resident in the UK when they receive the onward gift.

The onward gift may be made at any time after the original payment has been made, or before if it is made in anticipation of the original beneficiary receiving the payment. This differs from the rules first announced in December 2016, which only applied where the onward gift was made in the three years after the original payment.

The onward gift must be of or include one of the following:

The whole or part of the original payment.
Anything that derives from or represents the whole or part of the original payment.
Any other property, if and only if, the original payment is made with a view that a gift will be made to the subsequent recipient.

This means that gifts made which are not at all connected to the receipt of the original payment should not be caught by these rules.

Where a series of gifts are made, the recipient of the last gift in the series will be treated as having received the original payment from the trust.

If the subsequent recipient of the gift is a close family member of the settlor of the trust, then this provision will apply in connection with the above provision to tax the settlor as though they received the capital payment.

What now?

Non-doms who are not already deemed-domiciled under the new rules should consider the creation or further use of foreign trusts to hold investments.
Non-doms who are not already deemed-domiciled may wish to consider receiving trust distributions whilst they are still able to use the remittance basis.
Non-doms who became deemed-domiciled from 6 April 2017 should consider whether they can take advantage of the automatic rebasing of non-UK assets for capital gains tax purposes. In particular, individuals who have not previously paid the remittance basis charge may wish to consider if it is worth doing so for 2016-17, or for another year for which they are still in time to make the election.
Non-doms with mixed funds should analyse these funds to determine if there is clean capital available that may be remitted to the UK without a tax charge.
Trustees of offshore trusts with both UK resident and non-resident beneficiaries may wish to consider making distributions to non-residents prior to 5 April 2018 in order to ‘wash out’ stockpiled capital gains.
Trustees of offshore trusts where the settlor is UK resident may wish to consider making distributions to close family members of the settlor prior to 5 April 2018.

For more information regarding any of the issues raised here, please speak to your usual Saffery Champness partner, or contact Clare Cromwell.Telephone: +44 (0)20 7841 4229, Email: clare.cromwell@saffery.com
http://www.saffery.com/news-and-events/publications/non-dom-tax-changes-update-september-2017

UK Non-Dom Measures Delayed until Future Finance Bill

As a result of the recent announcement to hold a snap general election in June, the government has had to postpone many measures that were included in Finance Bill 2017 in order to pass through the legislation in a shortened timeframe before Parliament is dissolved on 3 May. It is expected that most of the […]

UK non-dom status update

Changes to the UK non-dom regime are scheduled to take effect from 6 April 2017, with a transitional window in place until April 2019. The changes include deeming non-domiciled individuals who have been resident in the UK for 15 out of the previous 20 years as domiciled for income tax and capital gains tax, and applying inheritance tax to UK residential property owned by offshore structures.

The changes were removed from the Finance Bill this year ahead of the General Election, but were reintroduced last month. The announcement was met by disapproval from many in the accounting industry. The new law would see all non-doms liable to inheritance tax (IHT) on their UK residential property.

When are non-doms exposed to IHT?

Generally speaking, non-doms are only exposed to IHT on their personally held UK situated assets. In addition, every non-dom benefits from the IHT nil rate band, meaning that currently no IHT is payable on the first £325,000 of UK situated assets on death, assuming no lifetime gifts of UK situs assets.

UK residential property is a UK situs asset, of course, but in the past, non-doms wishing to own UK residential property would simply purchase it through an offshore company.

By interposing the company between themselves and the UK property, their ownership was of the shares of the offshore company – a non-UK situs asset not liable to IHT – and so, on the non-dom’s death, the UK property passed free of IHT to the next generation.

What about long-term UK resident non-doms?

The position of long term UK resident non-doms is slightly different. Once they had been resident in the UK for 17 out of the past 20 UK tax years (the new rules propose a reduction to 15 out of the previous 20 UK tax years), they become deemed UK domiciled for IHT purposes, regardless of what their actual domicile is.

Ignoring old estate duty double tax conventions, which can save the day in a few limited circumstances, deemed UK doms are liable to IHT on their worldwide, personally held assets.

Non-UK situated assets held in offshore trusts where the trust was created, and the transfer occurred, prior to deemed UK dom status starting, continued to be sheltered from IHT.

Offshore companies

If the government’s changes come to pass, the use of offshore companies to own UK residential property will no longer provide an IHT shelter. This will be the case for all non-doms, regardless of whether they are UK resident or not, or are deemed UK domiciled or not.

An interest in 5 per cent or more of a closely held offshore company, or partnership, which in turn owns, directly or indirectly, an interest in UK residential property of any kind, would be liable to IHT in the hands of the owner.

Further, any loan to or collateral given to another to enable that other to acquire UK residential property will also be a chargeable asset for IHT purposes.

Whole new band of IHT payers. If the changes are made, it seems that a whole new band of IHT taxpayers will be created – residential property owning non-doms. Many will come from jurisdictions which do not impose an estate or inheritance tax on death and will have no idea of the complexities of the IHT legislation – the IHT implications of making gifts with reservation of benefit (GROBs), for example. Hence, if the changes are made, there will shortly be a real need for advice to reassure non-doms that they can invest into the UK without losing 40 per cent of their investment to IHT.

What sort of solutions might work? Many of the IHT planning solutions currently used by UK doms will be of equal importance to non-doms. If these IHT changes come into effect, individuals are likely to start purchasing new UK residential property in their own names, rather than through an offshore entity, or removing existing properties from offshore structures into personal ownership. Some may work on the basis of selling their UK real estate before death is likely but they may not be familiar with using term life cover written in trust to cover the IHT risk. Married couples, both of whom have a non-UK domicile, can also take advantage of the generous, 100 per cent IHT spouse exemption on death.

Writing a UK will, ensuring that UK residential property passes to the surviving spouse after the first death, either outright or in a will trust giving the surviving spouse a life interest, will defer the IHT until the second death. If the surviving spouse sells the UK property and moves the proceeds abroad before their death, IHT may be legitimately avoided altogether.

Non-doms need to be made aware that gifts of UK residential property in lifetime, perhaps to the next generation, could have IHT implications if the gift is not survived by seven years. Again, term life cover may have a role to play. However, the IHT legislation disapplies, the GROB rules in certain situations where gifts of shares of property are made. A time when both UK doms and non-doms need high quality IHT planning advice may soon be upon us.

The full draft legislation will now be included in a Finance Bill, which will be introduced following the return of Parliament on 5 September 2017.

Acknowledgents to Accountancy Age and to the FT

Italy grants first successful non-dom status application to former UK non-dom

Italy has granted the first successful application for non-dom status following the introduction of a favourable tax regime for non-domiciled residents earlier this year.

The regime aims to attract investment to the country by offering newly tax resident individuals in Italy a yearly substitute tax of €100,000 (€25,000 for each additional relative) on foreign-sourced income, instead of taxing income on a worldwide basis. To qualify, individuals must have been non-tax resident in Italy for at least nine out the 10 years preceding their transfer to the country. The regime is valid for 15 years.

The first individual to have been granted non-dom status was represented by Withers. The firm said that the high net worth individual was previously registered as a non-dom in the UK, and decided to move to Italy “to take advantage of the new status and to establish a new hub for his family”.

Head of the Withers Italian tax team Giulia Cipollini, said: “Our client has been non-tax resident in Italy for the past nine years and owns assets and investments around the world and has been the director of several non-Italian companies. He is a great illustration of how the Italian res non-dom scheme can be extremely attractive for internationally mobile individuals and we’re delighted to have been able to secure the first approved non-dom application.”

Acknowledgement: Emma Smith of Accountancy Age