Non Dom Headache?

Fiduciary Wealth Team

UK Resident Non Dom? An old favourite that continues to work

Significant changes to non dom rules mean an even greater need to weigh carefully the implications for those living in the UK as a non domiciled individual. There has been much talk about de enveloping properties, reviewing and assessing trust arrangements but one simple structure, an offshore bond remains an effective weapon in the non doms’ tax planning arsenal.

These are just a few of the reasons to consider placing assets within a bond/ tax wrapper.

Tax Free Growth & Tax Deferral – Is available within an offshore bond with income and gains rolling up tax free, potentially giving clients higher returns through compound growth and gross roll-up because there is no* tax drag. [*witholding tax may apply].

Tax Deferred Withdrawals – Up to 5% per annum (of original capital) can be withdrawn without causing a tax charge. It is worth noting that offshore investment bonds must be funded with clean capital so that the 5% allowance can be utilised without causing a remittance.

Clean Capital – Remittances to the UK without tax are only possible if clean capital can be separated from income and capital gains. Clean capital is extremely difficult to achieve for offshore banks, trustees and asset managers due to the historical mixing of funds in client investment portfolios. However, the UK government has offered a 2 year ‘amnesty’ from 6th April 2017 which will allow mixed funds to be cleansed by splitting into their constituent parts.

 Investments – Asset managers can invest into UK investment markets through an offshore portfolio bond without triggering a remittance and the consequential tax consequences

Tax Free Switching – can take place inside the bond because there is never any capital gains tax payable by a life company bond, giving greater freedom to optimise their investment strategies.

High Remittance Basis Charge – claiming the Remittance Basis of taxation for a UK resident non domicile is expensive. The Remittance Base Charge is GBP 30,000 every year after 7 years of residency in the UK, rising to GBP 60,000 each year after 12 years. Clients can use a bond to shelter investments and choose to never pay this charge.

Loss of UK Tax allowances – individuals claiming the Remittance Base Charge will lose their UK personal tax allowances for income tax and capital gains tax purposes, even in the first 7 years of residency when there is no charge for the Remittance Basis. Using an offshore bond leaves a client’s UK tax allowances intact.

Portable – if a current UK resident non domicile decides to leave the UK in the future, life insurance bonds are widely recognised globally and in most jurisdictions are legislated for, frequently as a tax deferral solution.

In many scenarios using an offshore portfolio bond wrapper for many UK resident, non-domiciled clients can produce a better outcome when incorporated into their financial planning.  Call our London office on +44 207 998 0570 to see how you can benefit from investing in a UK offshore bond.