The wealth planning landscape in the UK is changing. A raft of new tax legislation, the Paradise Papers, jurisdiction grey lists, and general Brexit bemusement have all contributed. Add to this the continued growth of new wealth in the hands of restless millennials – what exactly does a cross-border ‘wealth solution’ look like in 2018?
2017 – A Year of Legislative Changes
The Finance (No2) Act 2017 changed the deemed domicile (‘DD’) rules. From 6 April 2017, non-domiciled individuals who have been resident in the UK (‘RND’s) for 15 out of the last 20 tax years will be considered DD for ALL tax purposes, thereby losing the option to be taxed on the remittance basis.
The Act added that UK property held indirectly via an offshore company or trust will no longer be sheltered from UK Inheritance Tax (‘IHT’). Further changes to the taxation of UK property are expected from April 2019. Specifically, gains made on disposals of all UK property by non-UK residents (whether held directly or indirectly) will from thereon be subject to Capital Gains Tax (‘CGT’).
On 1 December, the Winter Finance Bill introduced a fresh wave of anti-avoidance legislation on the use of offshore trusts. Once enacted as the Finance Act 2018, the law will specifically prohibit the ‘washing out of gains’ via trustee payments to non-UK resident beneficiaries or remittance basis users (‘RBU’). A further provision referred to as the ‘anti-recycling rules will seek to tax any onward gifts from non-UK resident beneficiaries or RBU to UK tax payers.
Outlook for Jurisdictions
Alongside these flurry of changes to the tax rules, the publication of the so called ‘Paradise Papers’ managed to blur the use of terms such as ‘evasion,’ and ‘avoidance,’ and in so doing confused the subject of good tax efficient planning.
On 5 December, the Council of the European Commission published a paper that listed 47 jurisdictions as ‘non-cooperative’ for tax purposes. As the EU continues to move towards greater transparency, several jurisdictions including the Channel Islands and Isle of Man were placed on a ‘grey list ’and advised to avoid participation in aggressive planning or risk being blacklisted.
The Future is …
Under the current climate, RND’s may understandably feel they have arrived too late to the buffet. However, even with re-drawn planning parameters, there are still options that stand the test of time. In particular, RNDs approaching DD status should seek comfort in the tax efficient pairing of an excluded property trust and offshore bond (life policy).
As an investment wrapper, the offshore bond benefits from tax deferred growth commonly known as the ‘gross roll up’. Any gains on encashment (or other chargeable event) is subject to income tax not CGT. Another feature is the permitted annual withdrawal of 5% of the premiums for up to 20 years on a tax-deferred basis. There is no CGT liability when switching underlying funds or assigning the bond by way of gift, and it is worth noting that the offshore bond is a tool that offers very simple administration.
As a Luxembourg-based Insurer, One Life is well equipped to help you and your clients manage, protect, and transfer their wealth.
Luxembourg is one of the few triple AAA rated countries by Standard and Poor’s and Moody’s, and the second largest international investment centre.
As the past financial crisis undermined confidence in financial institutions, there is comfort that Luxembourg’s regulatory and legal framework offers exceptional stability and secure asset protection under the well-known Triangle of Security.
We offer flexible, portable and compliant solutions. Clients moving from the UK to other countries with our products can also benefit from the international experience of an in-house team of specialist lawyers who provide cross-border wealth planning and tailored solutions for clients on the move.
Whatever your client’s requirements and regardless of the borders they cross, at OneLife we believe the future of wealth planning is about simple, portable and secure solutions.