Wealth Planning opportunities for UKRND

Wealth Planning opportunities for UKRND

Since the publication of the Summer Budget 2015, a great discussion regarding UKRND has started and is still going on. At that time, the British government announced that it would change the tax regime for people who have a foreign domicile (UK Resident Non-Doms – “UKRND”) to bring an end to the permanent non-dom status for tax purposes. Hereinafter the reform´s pathway:

  • At the Summer Budget 2015: technical document explaining the overall package of reforms;
  • On 30th September 2015: reforms’ draft to the taxation of non-domiciles, which consulted on the detail of the deemed-domicile proposals. The consultation ran for 6 weeks;
  • On 9th December 2015: part of the draft legislation for the abovementioned changes, with further legislation published in draft on 2nd February 2016;
  • On 23rd November 2016: Autumn Statement;
  • On 5th December 2016: final draft legislation with draft clauses, consultation responses and technical notes confirming that the changes will go ahead as planned in April 2017.

 

This reform took a cue from the “not-so-hide” public perception that non-doms do not “pay their fair share”, for what concerns taxes. However, the British government is broadly aware of the non-doms positive contribution to the UK economy and it still does not want to lose the opportunity to encourage inward investment and entrepreneurial activity in the UK. This is the last chance to professionals – operating in this field – to set up an immediate action and take advantage of the little time until the 6th of April 2017.

The draft legislation´s key points are:

  • New rules will apply from the 6th of April 2017;
  • Never ending non-dom status come to an end, UKRND who have lived in the UK for 15 over 20 years will be treated as domiciled (deemed-UK-Domicile) for all taxes (UK Income, Income Gains, Capital Gains and Inheritance Tax on clients’ global assets)
  • All investment returns from directly held portfolios managed/advised ext. – outside the UK – will be liable to UK taxes on an arising basis;
  • Chance to cleanse mixed funds extended to two tax years;
  • Automatic rebasing (for the Capital Gain Tax purpose) available to those who become deemed domiciled from 6th of April 2017;
  • Changes to trusts’ taxation regime.

In this new framework, the subscription of a life insurance policy is attractive and efficient because of the offshore insurance bonds’ characteristics. One of the most eye-catching is the 5% tax-deferred withdrawal allowance for what concerns the clean-capital withdrawals in life insurance policies. If the offshore bonds are funded with clean capital, the policyholder is allowed to withdraw the 5% of the total assets without causing a remittance and, consequently, without suffering a tax charge. In addition to that, if one year, the policyholder withdraws 4% of the premium, the next year he will be entitled to an allowance of 6%. However, non-taxable remittances to the UK are only possible if the clean capital, invested as premium, comes from a segregation between capital and capital gains. This is the right moment to benefit from the two-year amnesty – starting as from 6th April 2017 – to cleanse mixed funds, splitting them into their constituent parts. In addition to that, life insurance policy are easily portable in the other jurisdictions and the relative reporting is fast and simple, compared to other kind of investments portfolios.

 

Article by Francesco Bruno – Senior International Wealth Planner, FARAD International