In today’s pre-election Autumn Statement the Chancellor introduced a major change to the Stamp Duty Land Tax regime, but therewere few other significant changes for high net worth individuals. Non doms are faced with another increase in the remittance basis charge.
EXPERT LEGAL INSIGHTS / Articles tagged "non-doms"
UK Revenue changes position on foreign income/gains used as collateral for loans by non-domiciled remittance basis users
The UK Revenue has, with immediate effect, changed its position on the taxation of non-doms using foreign income/gains as collateral for borrowings used in the UK. From 4 August 2014 using foreign income/gains in this way will result in a taxable remittance.
Changes have been recommended to the Tier 1 (Investor) visa, including:
- increasing the minimum £1 million investment threshold to £2 million;
- removing the ability to borrow the funds that the applicant is required to invest in the UK; and
- introducing a premium route which would offer a successful applicant indefinite leave to remain in the UK after 2 years.
Read this if you, or any of your clients, have a dual employment contract.
The UK Revenue has published draft legislation which will prevent the future use of dual employment contracts in most cases. From 6 April 2014, earnings from the overseas contract under dual contract arrangements, which would previously have been taxable on the remittance basis, will in most cases be taxable on the arising basis.
HMRC considers that using debt to buy assets that are not chargeable to inheritance tax allows scope for “two bites of the cherry”.
Finance Bill 2013 introduces provisions to counter this planning. The provisions restrict the set-off of borrowings if the borrowed money is used to buy assets which qualify for IHT relief. In particular, it has a significant impact on:
• non-UK domiciled individuals (and their trusts) who take out borrowings secured on UK assets to reduce their value for inheritance tax; and
• entrepreneurs using their houses as security for borrowings used in their businesses.
HMRC has proposed changes to the way in which inheritance tax charges on trusts are calculated. If enacted, the proposals will effectively mean an end to ‘pilot trusts’ (see below) and anyone who has established pilot trusts should review their planning. The proposed changes will impact on trustees, settlors and beneficiaries of trusts which are subject to UK inheritance tax, including trusts set up by non-UK domiciled settlors which hold UK assets.
Non-UK domiciled individuals will be able to elect to be treated as domiciled in the UK for inheritance tax (‘IHT’) purposes under provisions contained in the draft Finance Bill 2013, published in December 2012. Where an election is made, gifts made by a UK domiciled spouse to his non-UK domiciled spouse will be free from UK IHT.
Changes to the measure announced at the time of the 2013 Budget mean that lifetime gifts made within the seven years before death will now also be able to benefit from the full spouse exemption even if no election was in place at the time of the gifts.
Borrowings secured against properties reduce their value for inheritance tax purposes, with only the net value being taxable. Damian Bloom, Private Client partner discusses new restrictions on the set-off of debts, if the borrowed money is used to buy assets which qualify for inheritance tax relief, or is taken offshore by a non-UK domiciled individual. This will have a significant impact on entrepreneurs using their houses as security for borrowings used in their businesses, as well as non-domiciliaries putting in place inheritance tax planning.
Non-doms who claimed the remittance basis in 2008/2009 only have until 5 April 2013 to make a ‘loss election’
You should read this if you, or any of your clients, are non-UK domiciled, claimed the remittance basis of taxation for 2008/2009 and have not already made a loss election.
A non-UK domiciled individual who claimed the remittance basis of taxation in the 2008/2009 UK tax year only has until the end of this tax year (5 April 2013) to make a loss election. If he makes an election, he will be able to set losses, which accrue to him on non-UK assets (his ‘foreign losses’), off against his gains (foreign & UK). If an election is not made by then he will lose the opportunity to make an election.
If an individual does not make an election, he will not be able to deduct his foreign losses from his gains in calculating his taxable gains (unless he becomes UK domiciled at some point in the future). He will still be able to set his UK losses off against his UK gains, and any foreign gains which are remitted to the UK.
Whether or not it is appropriate for a non-UK domiciled individual to make a loss election will depend on his specific circumstances and advice should be sought.
The UK Revenue (HMRC) has changed its view on where speciality debts are located for UK inheritance tax (IHT) purposes. The change could impact on offshore trusts where money has been lent to UK resident beneficiaries on the basis that the debt was a specialty debt and was located outside the UK.