It is exactly one week until 6 April and the start of the new tax regime for non-doms. In some cases any restructuring must be done before then otherwise a delay will trigger large immediate tax charges. In other cases, whilst waiting won't necessarily trigger an immediate tax charge, it will still result in the loss of valuable reliefs and exemptions. We have set out below a selection of planning ideas which we recommend are implemented before 6 April for those affected. Now is the last chance for many non-doms to undertake urgent tax planning, and our tax lawyers at Mishcon de Reya will be doing all they can to assist clients and contacts before the deadline.
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 now will generally be immediately exempt from IHT whereas a gift after 5 April will be a potentially exempt transfer (or PET) with a need for the donor to survive seven years. Similarly, if the company is owned by a trust of which you are the settlor and a beneficiary, exclude yourself as a beneficiary before 6 April to avoid a deemed PET.
- If, in the absence of an IHT shelter after 5 April, non-dom or trustee shareholders decide to de-envelope a property-holding company to avoid future ATED, they should urgently consider doing so before 6 April as there may be significant tax savings. Examples can include where there are large historic gains or, in a trust context, where there are appropriate beneficiaries who are currently non-UK resident but who may not remain so. De-enveloping early will also save some ATED and potentially CGT.
- All such residential property-holding structures should at least be reviewed before 6 April to check whether any urgent action is needed.
Long term resident non-doms about to become deemed domiciled
- If you're about to become deemed domiciled, make gifts of any excluded property now, whether to other individuals or into a trust. Delaying any gifts to individuals until after 5 April will turn exempt gifts into PETs, whilst delaying gifts into trust will overnight go from being exempt to triggering an immediate 20% IHT charge. Making a gift of excluded property now into a trust has the added benefit that the assets will remain exempt from IHT on a permanent basis.
- For those becoming deemed domiciled on 6 April, trusts will also offer long term tax deferral on trust income and gains. If the underlying assets continue to be owned personally, any future income and gains they generate will immediately be taxed on an arising basis. In contrast, transferring the assets to a trust now will ensure that future income and gains will not be taxed for as long as no benefits are taken from the trust.
- Another strategy for those about to become deemed domiciled is to realise non-UK income and gains now and claim the remittance basis while that's still possible. Delaying until after 5 April will mean the income and gains will be taxed immediately on an arising basis, even if they are never remitted to the UK.
- Similarly, beneficiaries of offshore trusts should take distributions from trusts now while they can still claim the remittance basis.
- Consider restructuring assets so that the benefits of CGT rebasing will be available after 5 April.
Washing out trust gains
- Although it now seems the new rules preventing gains from being "washed out" by making distributions to non-residents will not take effect on 6 April, this is not certain. 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. Although the proposal to tax those UK-resident recipients on trust gains as if they had received the distributions directly from the trustees seems to have been deferred, this is not guaranteed. Non-resident beneficiaries should therefore urgently consider making any onwards gifts to UK residents before 6 April.
Many, if not all, of these planning ideas are still achievable in the limited time available but immediate action must be taken.
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 tax contact.