Brokers Killik & Co have issued an advice note with the non UK domiciled wealthy in mind.
Brokers Killik & Co have issued an advice note with the non UK domiciled wealthy in mind. It says that while the Treasury is set to continue tightening the screw on UK-based non-domiciled residents in the 12 March Budget, it is still possible for them to shelter assets by rolling them into an offshore bond to mitigate the effects of the GBP30,000 annual levy.
The current rules state that non-doms living in the UK are taxed on their worldwide income on a remittance basis i.e. when they bring offshore income or gains in to the UK.
As of 6 April this is set to change when non-doms who have been resident in the UK for seven of the last nine years will need to elect to pay the proposed GBP30,000 annual levy and continue to be taxed on a remittance basis, or simply be taxed on worldwide income and gains as they arise.
The looming clampdown on offshore trusts may see non-doms switch to offshore bonds which will continue to enjoy their current tax treatment – not giving rise to capital gains and only giving rise to taxable income when a ‘chargeable event’ occurs. This enables non-doms to place assets held abroad into an offshore bond and elect to be taxed on worldwide gains and income as they arise – which should mean they avoid paying the GBP30,000 levy and minimise tax liability. In addition, any assets held by non-doms in an offshore bond would not be subject to UK inheritance tax.
According to Lee Smythe, director of financial planning at Killik: ‘The beauty of an offshore bond is that tax is payable when it is encashed; making it useful for foreign nationals resident in the UK as well as UK nationals paying 40 per cent tax who can defer payment until they are subject to lower-rate income tax in retirement, or until they have moved offshore.
‘A further advantage is the opportunity to draw 5 per cent a year income with no immediate tax to pay although anything above that will be deemed a ‘chargeable event’ subject to income tax at the marginal rate of tax’.
Killik highlights the example of a non-domiciled couple who recently transferred assets into its offshore bond.
A non-domiciled couple living in the UK had GBP1m in a Singapore bank account which was not subject to UK tax under the current legislation unless the funds were brought into the UK. By transferring the assets into an offshore bond the couple will be able to draw 5 per cent income annually whilst avoiding the need to pay the proposed flat fee of GBP30,000 each on a ‘remittance basis’ or on worldwide income as it arises.
