The Autumn Statement offers a window of opportunity to maximise financial planning opportunities offshore, but not for long, writes Skandia International's Rachael Griffin
The Autumn Statement has become a highlight in the December calendar, providing the chancellor with the opportunity to make some incremental adjustments to the UK budget.
Some changes were welcome – such as the modest increases in allowances, while others, such as the cuts to tax relief on pension contributions, manifested through the lowering of allowances, were much less pleasing but widely anticipated.
The proposals have been well reported but the thin silver lining is that some of the changes do not take effect until April 2014. In fact, some of the key proposals provide financial advisers with compelling reasons to reconnect with their international-based clients and discuss the financial planning opportunities available to them today, before the changes take effect.
In particular, for international investors who are still UK domiciled, despite the minimal increase in IHT nil rate band (1% in 2015-2016 to £329,000) it is continually important to ensure that annual gifting is utilised. Moreover, they can further freeze any inheritance tax liability by gifting into trust now rather than the future, which will ensure all growth on the gift is outside the settlor’s estate (assuming they cannot benefit).
We want QNUPS
With pension allowances reducing – the annual allowance will be lowered from £50,000 to £40,000 in 2014/2015 and lifetime allowance set to reduce from £1.5m to £1.25m, also effective in 2014/2015, international clients may wish to consider utilising a qualifying non-UK pension scheme (QNUPS) for funds that would not be eligible for UK tax relief.
Although savings channelled into QNUPS would not benefit from tax relief, the schemes do not currently stipulate limits on contributions. This makes the arrangements appealing to clients who wish, and are able, to supplement their retirement provision and potentially benefit from preferred tax treatment when a lump sum and income is taken. Many QNUPS trustees utilise offshore bonds as the underlying investment vehicles which, amongst other benefits, also offer access to a wide choice of investment options. Plus, the investment growth on assets within the bond is free from capital gains tax – a tax advantage that should not be disregarded.
With the lifetime allowance due to reduce from £1.5m to £1.25m from 2014/2015, clients who are already resident outside the UK and whose pension pots are close to, or are likely to exceed the £1.5m threshold imminently, should consider crystallising benefits now and transferring to a qualifying recognised overseas pension scheme (QROPS). Making full use of the tax efficiencies provided by QROPS will ensure that no additional tax charges on savings accrued above the £1.5m ceiling would apply.
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