government still remains undecided over 5% withdrawal limit on offshore bonds
The 2003 UK Budget was a kind one for British offshore investors ' almost nothing happened.
The Government is still undecided on whether to change the 5% withdrawal limit on offshore bonds or to change the taxation rules for domicile. The inheritance tax (IHT) threshold has been only raised from £250,000 to £255,000.
According to Aegon's Lesley McPherson, property prices has risen by about 26% in the past two years, so a far greater number of people are falling into this bracket.
By only increasing the amount slightly it means a greater number of people may be encouraged to reduce their inheritance tax liability and invest offshore.
Another aspect of the Budget was the absence of the proposal to abolish the 5% tax-neutral withdrawal from offshore bonds. Nevertheless, McPherson recommended intermediaries should make investors aware of the benefit of the 5% rule sooner rather than later in case the Government decides to abolish it.
Another area the Budget touched upon was the issue of domicile and taxation.
Although the Government has not decided what it will do, it published a background report in the Budget concerning the taxation of offshore earnings. At the moment, UK residents not domiciled in the UK are liable on overseas income and gains only to the extent that these are remitted or received in the UK.
Rod MacDonald, marketing manager at Clerical Medical International, says if these rules were changed it could have implications to offshore business as non-domiciled UK residents are more likely to use offshore vehicles.
One change that is potentially advantageous is that investors in UK unit trusts and Oeics who are deemed to be non-domiciled in the UK will find it easier to obtain interest payments gross and will not be charged IHT above the tax-free threshold on UK financial assets including UTs and Oeics.
On interest payments, the change means that 'reputable intermediaries' or unit/shareholders that are companies or trustees will be able to obtain interest payments from funds without having to submit 'not ordinarily resident' declarations.
That change has come about due to practical difficulties in ensuring funds get the proper paperwork, the Revenue says. Cutting the potential IHT liability will make it easier to sell UK funds to non-domiciled investors, the Revenue added.
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