UK resident non-domiciles who wish to avoid the £30,000 annual levy that will apply to those being taxed on the remittance basis could do worse than consider an offshore bond, according to wealth management and financial advice firm Killik & Co.
The new rules, which affect non-doms who have been UK resident for at least seven of the last nine years, come in on 6 April. The alternative for those not wishing to be taxed on the remittance basis is to pay UK tax on all worldwide income and gains as they arise.
With offshore trusts set to become less favourable for non-doms, Killik & Co says offshore bonds represent an opportunity, as they do not produce capital gains and only give rise to taxable income when a ‘chargeable event’ occurs. Thus non-doms could elect to be taxed on worldwide income and gains but avoid producing such taxable gains, and also take advantage of the 5% annual withdrawal facility of offshore bonds.
Lee Smythe, director of financial planning at Killik & Co, said: “The beauty of an offshore bond is that tax is payable when it is encashed; making them useful for foreign nationals resident in the UK who can defer payment until they have moved offshore.”
Killik & Co highlights the case of a non-dom couple who have transferred £1m from a Singapore bank account – the income from which would have attracted tax and laid them open to the £30,000 charge if remitted to the UK – into an offshore bond, from which they can make 5% withdrawals annually without giving rise to an immediate tax liability or being deemed to have remitted the income.
This could come as good news for offshore bond providers, who have been concerned that changes to the UK’s capital gains tax regime will make their products relatively less attractive to UK domiciled investors.
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