Managing your UK cash-flow – the options for non-doms

Are you non-domiciled and looking to manage your UK cash-flow, income, assets and investments? If you are, there are specific issues you’ll need to address in relation to your planning and compliance.

Elizabeth Henson

In this video Elizabeth Henson explains some of the complex rules surrounding non-domiciled individuals in the UK and some key tax issues which may affect those looking to invest their cash here.

View transcript

If you are non-UK domiciled and looking to manage your UK expenditure, income and assets there are specific tax and investment issues you’ll need to consider.

The tax rules for non-doms are complex and prescriptive, so even a small step wrong can have potentially significant financial consequences. We can help to make sure your fiscal affairs are in order before you arrive in the UK and that you don’t put a tax step wrong once you arrive.

Investment remittance relief for non-doms came in to force from 6 April 2012 to help incentivise business growth. If you’re looking to invest in a UK business, this is worth considering as it provides a route for bringing funds to the UK without being treated as a taxable remittance.

If you have been UK resident for almost 17 out of the last 20 tax years you may become deemed domiciled in the UK imminently. This would mean you would be liable to UK inheritance tax on your worldwide assets. There may be inheritance tax planning that can be considered prior to becoming deemed domiciled in the UK to mitigate such a tax exposure, but you’ll need to act as soon as possible if you’re in this position.

The tax rules regarding holding residential property in the UK are changing, with increases in Stamp Duty Land Tax already in force. Additional charges and capital gains tax will be introduced on property held by non-natural persons (broadly speaking this means companies) from the 6 April 2013. These rules are complex and determining the best structure to use will depend on your unique circumstances.

As a non-UK domiciled individual the use of offshore trusts remains an effective method for the ownership of assets – providing confidentiality, legal separation and asset protection. However the use of trusts is a complex area and such structures should be considered carefully.

Should you wish to discuss these issues or any other queries you may have please speak to me or one of my colleagues.

Remittance relief for investing in the UK

Business investment relief has been brought in to help attract additional investment from non-UK funds. You can make loans to, or acquire newly issued shares in, qualifying UK companies. If you are looking to invest in a business, this is worth considering as it provides a route for investing in the UK without creating a taxable remittance. Potentially, this means a significant increase in the size of the investments you can make into the UK as offshore funds can be brought into the UK tax-free.

Becoming deemed UK domiciled – inheritance tax impact

If you are not domiciled in the UK you are not normally subject to UK IHT on non UK situs assets. However care is required where you might be resident in the UK for a pre-longed period of time. The UK rules provide that where you have been resident in the UK for 17 out of the last 20 tax years, you will be regarded as deemed domiciled in the UK for inheritance tax purposes only. This will mean you are liable to UK inheritance tax (IHT) on your worldwide assets. If you are approaching the time when this might apply to you, it is worth thinking about how your non UK assets are owned as there are options that can reduce your family’s potential exposure. As ever it is worth considering your options well in advance and we would be happy to talk this through with you.

New UK residential property rules – impact for property holding structures

There have been changes to the taxation of UK residential property worth more than £2 million where this is held by ‘non-natural persons’ (broadly companies and partnerships with corporate partners). These changes have brought in a new annual charge from 1 April 2013 as well as capital gains tax (CGT) from 6 April 2013.

It is not uncommon for international investors to acquire property via a ‘non-natural’ person and as a result it may now be appropriate to reconsider any such structures to ensure they are fit for purpose. Equally future acquisitions should be undertaken with both the new rules and your not domiciled status in mind.

Please refer to the section on "Preserving your assets" for more detail regarding the impact of these changes.

Offshore trusts – effective ownership method

As part of its ongoing initiative, HMRC is likely to expand its offshore agreements into other territories such as Singapore. So proactively reviewing your offshore affairs and ensuring tax compliance is highly advisable.

General Anti-Abuse Rule

Major anti-avoidance legislation has been implemented in the form of the general anti-abuse rule (GAAR) which is designed to target aggressive tax planning. The GAAR is effective from mid-2013 and applies to (amongst other taxes) income tax, capital gains tax, inheritance tax, stamp duty land tax and the new annual residential property tax, and there is no clearance procedure, so we’d recommend you seek advice prior to initiating any future tax planning.

HMRC enquiries

HMRC enquiries can be stressful and you could face penalties of up to 200% of the tax due on an incorrect return.

It’s never been more important to deal with an enquiry effectively and efficiently. Our investigations specialists can help you to manage the process.  In particular: 

  • if you receive a letter offering the Contractual Disclosure Facility (i.e. under Code of Practice 9) or opening a Code of Practice 8 enquiry, you will need to ensure you obtain specialist advice.  These are serious investigations which require expert knowledge and experience to handle appropriately.
  • HMRC are committed to using Alternative Dispute Resolution to resolve old enquiries and we have trained experienced tax mediators who can help you through this process.  If an enquiry has been going on for some time, or stalemate has been reached, the ADR process might help resolve the situation. 

Settlement opportunities

  1. There are settlement opportunities for taxpayers who have historically participated in tax avoidance schemes. The terms of these facilities differ but in the majority of cases, the outcome of a negotiated settlement will be better than the potential worst case scenario outcome should the planning fail as a result of an adverse court or tribunal decision.  If you are in dispute about historic tax planning, we would advise that you consider whether a settlement under one of HMRC's offers is worthwhile.
  2. For structures involving employee benefit trusts (EBT). We have a wealth of experience in dealing with EBT settlements for owner-managed businesses – if you would like to discuss your own situation please contact us.