Countdown to 2017

Countdown to 2017

Non-Dom Tax Changes – It's Not Too Late!

6 April marked the start of the new tax regime for non-doms. It is still not too late to act. We have set out below a selection of planning ideas which can still be implemented after 6 April.

Residential property owned by non-doms through an offshore company

  • If you own residential property through an offshore company, consider giving away the shares to a younger generation to mitigate the new IHT exposure. Any gift will be a potentially exempt transfer (or PET) provided the donor survives for seven years. With married couples, it may be advisable for the younger spouse to make the gift. Similarly, if the company is owned by a trust of which you are the settlor and a beneficiary, exclude yourself as a beneficiary and it will fall outside your IHT estate after seven years, assuming you do not continue to occupy the property.
  • In the absence of an IHT shelter after 5 April, non-dom or trustee shareholders may decide to de-envelope a property-holding company to avoid future ATED.
  • Life insurance may be a cost-effective method of funding the potential IHT liability. Any policy should be held in trust to ensure the policy proceeds are not themselves exposed to IHT.
  • All offshore residential property-holding structures should at least be reviewed (if they have not been reviewed already) to check whether any action is needed.

Long term resident non-doms who have just become deemed domiciled under the "15 out of 20" rule

  • You can benefit from the CGT rebasing on non-UK assets, for example by selling those assets and bringing the sale proceeds onshore as clean capital. This actually puts you in a better position than before 6 April.
  • You have a two-year window to take advantage of the "mixed fund" cleansing rules, so as to segregate your offshore income, gains and capital. You can then bring your tax-free capital to the UK.
  • You can make gifts to your children which will fall outside IHT after seven years.  You and your spouse can each make gifts to family trusts of an amount equal to your nil rate band (£325,000). With certain qualifying business assets, you can make gifts to trusts of unlimited value.

Washing out trust gains 

  • The new rules preventing gains from being "washed out" by making distributions to non-residents that were due to come into effect on 6 April have been delayed. It is not certain when they will be introduced, possibly on 6 April 2018.  It would be prudent for trustees to make such distributions now.
  • If non-resident beneficiaries do receive (or have previously received) trust distributions that have effectively washed out the gains, those beneficiaries can still make gifts to UK residents without the gains being taxed on those UK recipients. The proposal to tax those UK-resident recipients on trust gains as if they had received the distributions directly from the trustees has been deferred. It is not certain when the rules will be introduced, possibly on 6 April 2018. Non-resident beneficiaries should therefore consider making any onwards gifts to UK residents now.

Next steps

These planning ideas are still achievable, even after 6 April.

If you would like us to analyse your particular circumstances and advise on a tailored strategy, please contact Andrew Goldstone or your usual Mishcon de Reya LLP tax contact

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