The Pre-Budget Report (PBR) has introduced a need for advice for non-UK domiciles resident in the UK, says Skandia.
Currently, non-UK domiciles resident in the UK do not pay tax in the UK on income and capital gains arising overseas unless they bring the money to the UK.
However, under the PBR proposals, this group of people will have a choice either to pay tax in the UK on income and capital gains arising overseas, or to pay a fixed charge of £30,000 a year, once they have seven years UK residency.
Any non-UK domiciles with overseas assets greater than about £1.5m could benefit by paying the £30,000 tax charge. Meanwhile, clients with overseas assets less than about £1.5m could be rewarded by paying tax in the UK on income and capital gains arising overseas.
Skandia says advisers should consider offshore bonds as an option for clients who choose not to pay the £30,000 annual charge.
This would enable clients to defer payment of tax until encashment of the bond, when the individual may no longer sit in a higher-rate tax band or may no longer have UK residency. An offshore bond would also allow withdrawals of 5% without any immediate liability to UK income tax.
Skandia also warns advisers should consider the impact on all non-UK domiciled clients, and not just those who have had residency for the past seven years. The provider highlights the test for residency will also change so the authorities count arrival and departure days as days in the UK.
This means that people will more quickly become UK resident, which the provider says could happen without clients knowing the rules.
Colin Jelley, head of tax and financial planning at Skandia, says: “We have carefully worked through the proposals in the pre-budget report to try and understand the true impact they will have on UK taxpayers.
“All change brings opportunities and these proposals are no exception. The latest proposals in particular will affect non-UK domiciles living or working in the UK, which for some advisers could be a significant portion of their clients.
“A good deal of those would be expected to have overseas assets substantially less than £1.5m. The need for up-to-date advice for this group of people is indisputable.”
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