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New IHT rules for Non Domiciled individuals

New IHT rules for Non Domiciled individuals

On 9 December 2015, HMRC and HMT published draft amendments to the inheritance tax (IHT) legislation for non-UK domiciled individuals (to be included within Finance Bill 2016). The objective of the amendments is broadly to align the IHT deemed domicile rules with the proposed deemed domicile rules for income tax and capital gains tax. The draft provisions also seek to ensure that where an individual is born in the UK with a UK domicile of origin at birth, and where they later acquire a non-UK domicile of choice, they will be treated the same for IHT purposes as a person who is UK domiciled under general law, when they resume UK residence (if they have been UK resident for one of the two preceding tax years). Further, where a trust is established by such an individual (a 'returning UK dom') at a time when they were non-UK domiciled, that trust will have a similar IHT treatment to trusts established by UK doms, for any periods where the settlor is UK resident.

The following areas are preparation which non-doms should be doing as soon as possible -

  • ensure you have your team (lawyers, tax advisers, investment advisers) selected, united and briefed for action.
  • ensure you know your tax status. When will you become deemed domiciled under the new rules? You should ensure your tax advisers share this detail with your other advisers.
  • prepare your strategy. Will you remain in the UK or move offshore? Will you create new trusts? No firm plans can be made until the detail arrives, but having a strategy and 'game plan' is key.
  • if you are not yet domiciled in the UK for IHT purposes, consider creating an excluded property trust now. There seems little reason for delay.
  • if you have existing offshore trusts, commission a detailed review of their position and what you may need to do. It is likely that overseas assets (e.g. a Spanish villa) must be removed from the trust to avoid a benefit charge. It looks increasingly likely that there will be a very short window in which to restructure trusts and so it is imperative to have them reviewed now. If you are a trustee you should ensure you have discussed the position with your beneficiaries.
  • review your investment portfolio with your adviser. For many, it will be less than 480 days before their tax status may change and they become taxed on their worldwide income/gains. So you will not want to be taking profits on 6 April 2017 rather than 5 April 2017. This means you need to be re-designing your portfolio now.
  • consider alternative ways to 'wrap' your investments such as offshore bonds or family investment companies.
  • be tax compliant. Ensure all your affairs are in order these changes will initially lead to wider HMRC scrutiny.
  • if you own your UK home via a company start looking at the possibility of removing it from the company – but wait for further HMRC guidance before doing so.
  • keep up to date. Things are moving quickly and will get quicker. It is imperative to keep track of the changes.
new iht rules for non doms>

This section of TaxWorld examines New IHT rules for Non Domiciled individuals It includes various topic-sections:

Hopefully, these will provide some useful background on the issue, and equip you to make informed decisions and choices in this most financially sensitive of areas.

If you would like further assistance or more information on this subject please contact us through this email link

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