Excluded Property Trusts and UK non-domiciliary reform
Act now before the UK’s non-domiciliary reforms come into effect in April 2017.
UK non-domiciliary tax reforms are due to be released in April 2017, with the key changes likely to be that non-UK domiciled individuals will become deemed UK domiciled once you have been resident in the UK for 15 out of 20 tax years (as opposed to 17 out of 20 tax years under the current rules). Once you become deemed UK-domiciled, all of your worldwide assets fall within the charge to UK inheritance tax.
Another major change is that once you are caught by the new deemed UK-domiciled provisions, you will be taxed in the UK on your worldwide income and capital gains, i.e. you will no longer be able to claim the benefit of the remittance basis of taxation. This could, depending on your circumstances, result in a significant increase in the total UK tax payable after April 2017.
Consider establishing an excluded property trust
There is a relatively simple solution to this potential increase in the amount of UK tax payable. Before these new rules come into force (i.e. before April 2017, assuming the rules are introduced as planned), establish an excluded property trust. An excluded property trust should ensure non-UK-based assets remain outside the scope of UK inheritance tax (regardless of whether you subsequently becomes deemed UK-domiciled). The trust will also shelter those assets from UK capital gains while the assets remain in the trust. The UK Government and HM Revenue & Customs are fully aware of excluded property trusts and their use by non-UK domiciliaries. There are specific UK tax provisions which apply to excluded property trusts and, therefore, their use in these circumstances should not be considered aggressive tax planning.
Tax planning is vital for worldwide citizens that consider spending time in the UK.
So, aside from the UK domicile reforms, if you are yet to become a UK resident, you should seriously consider establishing an offshore trust before stepping foot in the UK
Spending a little effort now to establish an excluded property trust could save UK inheritance tax, which is currently 40% of assets above certain thresholds. In addition, assets can potentially grow free from UK capital gains tax. Making a trust takes time, the assets that form the trust can take time to be transferred and tax and legal advice will need to be sought to ensure that all relevant aspects are considered. Therefore it is important to act now to take advantage of the excluded property regime and its associated UK tax savings.
For more information, contact:
Kevin LoundesAbacus Trust Company Limited, Isle of Man
T: +44 (0) 1624 689600