haysmacintyre reacts: All change for non-doms and offshore trustees?

As a UK non-UK domiciled (non-dom) and offshore trust structure tax specialist of almost 30 years, having heard on countless occasions that the non-dom regime would be abolished, I was sceptical of the rumours, but the Spring Budget 2024 proved exciting.

My main health warning is that the UK has a General Election that must be held no later than January 2025 and the proposed changes are scheduled to take effect from 6 April 2025. Therefore, if we have a new government, there is a significant risk that these proposals won’t be introduced in this form, which makes planning difficult. However, if it is not these rules, it’ll be a replacement because the path has now been set.

That aside, we can only work with what’s been announced, so it is first worth saying that these proposed changes look exceptionally attractive to any high net worth (HNW)/ultra-high net worth (UHNW) individuals or families looking for a friendly tax jurisdiction in which to realise significant value (for example, a business sale, substantial dividends or trust appointments). This is because, for up to four years, these could all be entirely free of UK tax. Thereafter, all future income and gains will be fully taxable, but there remain options to manage that exposure.

There are two immediate factors. Firstly, the UK recently removed its investor visa programme, making it far more difficult to move to the UK and take advantage of this, so early advice needs to be sought because this can be a slow process. Secondly, the alluded to Inheritance Tax (IHT) changes may mean that any individuals who do manage to make use of these rules, may be ‘forced’ to leave within 10 years of arriving.

Putting aside any trust interests for a moment (see below), a non-dom who is already UK resident may benefit from some limited transitional rules to help soften the impact as well as the potentially very exciting two-year window in which to bring historic income and gains to the UK at a much-reduced tax rate of 12%. However, very often the main concern is the UK’s 40% IHT rate so ‘watch this space’ (because the rules are yet to be ‘consulted’ on) but depending on how long someone has been in the UK, there may be options to prevent this being a reason to leave the UK earlier than otherwise planned.

Finally, but closest to my heart (because I owe my career to the Channel Islands trust industry) is the potential impact for offshore trustees and their non-dom ‘settlors’ and/or beneficiaries.

For UK resident ‘settlor interested’ trusts, all of the structure’s income and gains may suddenly become taxable on the settlor as if it were their own, unless within the four ‘bonanza’ years. The settlor may have a legal right under the UK’s tax legislation to have the sums reimbursed, but will the trustees be able to? I remember discussions about this from the 1990s, so I’m looking forward to opening those dusty books (remember them?) again. It’s going to be critical to understand what the scale of the potential impact may be, the options, and whether there are any protections available, such as the ‘motive defences’ within the various anti-avoidance rules, because this could mean the difference between no UK tax and up to 45% UK tax having to be planned for. Excluding the settlor and spouse may also achieve nothing for Capital Gains Tax (CGT) purposes, so be careful when considering irrevocable exclusions. The suggested IHT benefits will more than likely keep many structures very appealing. For anyone who does consider terminating any structure, this could come with some surprises.

For any other type of trust where a beneficiary may move to the UK to enjoy the four years of bliss, there could be a splendid opportunity to make tax free distributions to them.

To my friends and colleagues in the ‘offshore’ fiduciary services industry, this could be a very exciting time with a frenzy of new trusts before 6 April 2025 and a need to understand existing ones under the possible new regime.

Please beware that a lot of detail is still unknown, so if you are a non-dom individual who has ever used the remittance basis or who may be considering coming to the UK, I would suggest speaking to a specialist as soon as possible (if that’s us, then even better!). If you are a trustee of a non-UK trust structure who has a UK resident settlor or beneficiary, then now is the time for a fresh ‘health check’ to take stock and consider your options.

For more on our non-UK domiciled personal tax and offshore trust services, contact James for more information.

Year End Tax Planning Guide 2024

The freezing of many tax rates and thresholds continues to increase the Government’s tax take, but there are still many useful ways to arrange your affairs tax efficiently, and we provide an overview of some of these in this tax planning guide.
For example, where you have discretion over the timing of income, you can establish when that income is best taken — in this tax year or the next. A review before 5 April 2024 could therefore have a significant effect on your tax position. For Scottish taxpayers, to whom higher tax rates and thresholds apply, this is particularly true.

Each year brings its own tax challenges, and this year is no exception. Although the 2023 Autumn Statement was low on dramatic announcements, there are a number of important changes pre-dating this which will take effect shortly. These will merit consideration as part of a year-end review for many people, and include:

  • Further reduction to the Capital Gains Tax (CGT) annual exempt amount.
  • A further cut in the Dividend Allowance.
  • The introduction of basis period reform for unincorporated businesses.

Our Private Client team work to have the all-round vision of your circumstances that can really help make an impact, and we look forward to being of assistance.

Download our Year End Tax Planning Guide below.

Strategies for a successful business exit

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  •  February 22, 2024
     4:00 pm - 7:00 pm

Led by experts from our Private Client and Transaction Advisory Services teams, join us to explore essential strategies for a successful business exit. Learn why planning your exit is crucial for maximising value, ensuring smooth transitions, and securing your financial future. The event will be followed by a chance to network and enjoy some canapes (more…)

Reactions to the 2023 Autumn Statement

Changes to National Insurance Contributions (NICs)

The Chancellor Jeremy Hunt announced 110 measures as part of the Autumn Statement, designed to stimulate economic growth, with significant changes to NICs. However, Katharine comments that the cut in NI rates might not be as significant as it seems.

Katharine says: “While the NI cuts will somewhat lessen the burden for many individuals, the actual annual saving is, in reality, minor when compared to the current tax burden on households.” Katharine also notes that with record highs of inflation, it has pushed many people into higher tax bands, leading to a record number of receipts for personal taxes.

Changes to National Minimum Wage and National Living Wage

In addition, the Chancellor announced an increase to the National Minimum Wage (NMW) and National Living Wage (NLW) rates, effective from 1 April 2024. However, Katharine questions whether this is more burden on businesses: “While it will mean slightly more money in people’s pockets, which should help the wider economy, employers will now need to cope with more complicated payrolls, applying the new rates before the start of the new tax year, and meeting the costs of the increased Living Wage.”

You can read Katharine’s comments across various publications below:

haysmacintyre’s full coverage of the Autumn Statement is here. For further advice on the Statement and what it means for you, contact Katharine here.

Is scrapping Inheritance Tax right for the economy? – FT Adviser

Can IHT reform be supported?

IHT in the UK is perceived by some as overly punitive. While only a small percentage of deaths incur IHT, public sentiment views it as particularly unjust, with some advocating for its complete abolition.

However, Katharine questions whether now is the time for significant tax reform. With the UK government’s debt exceeding 100% of GDP, there are arguments to be had against any unfunded tax cuts. IHT currently generates over £8 billion annually for the Treasury, and its elimination would mean finding alternative revenue sources.

Increases to Income Tax are not seen as viable due to already high taxation levels, with the Office for Budget Responsibility (OBR) projecting a collection of £268 billion next year. As thresholds freeze, more taxpayers find themselves in higher tax bands, compounding the issue.

When it come to Capital Gains Tax (CGT), while it has been suggested that the rates should align with Income Tax, increasing CGT carries its own risks. Higher rates could discourage the sale of assets, particularly among older taxpayers who may opt to hold onto their assets instead.

What will happen now?

Despite vocal calls for IHT reform, the Treasury has not committed to any definitive plans, with only tentative suggestions of reducing and eventually abolishing IHT when financially viable. The Chancellor has underscored the lack of leeway for tax cuts. While the debate around IHT continues, the Government has not yet found a path to its reform or abolition, and the current economic climate suggests that substantial changes to the tax system might be more disruptive than beneficial.

You can read Katharine’s comments in full via FT Adviser here.

Autumn Budget 2023 analysis

The Autumn Budget will be published on 22 November 2023 and any news about IHT reform will be announced then, if it happens. Katharine, our Private Client team and our wider tax teams will analyse each announcement made to determine what these changes mean for you. To hear our latest insights following the Budget, join our mailing list to be the first to receive news as it happens.

Private Client Briefing – Inheritance Tax and Probate 2023

The Nil Rate Band (or threshold) for IHT has been frozen at £325,000 since 2009, and there are currently no plans to increase it until at least 2028. Between 2009 and 2023, the average UK house price increased by more than 80%.

None of us likes to dwell on morbid thoughts, but there’s never been a greater need to plan for IHT, as the IHT receipts for the Treasury continue to increase, and more and more families are caught by the IHT net. This IHT and probate focused briefing highlights planning principles and opportunities for you to consider. This is of course an interesting time for IHT, with recent press reports suggesting that the Government may reduce the rate in the March 2024 Budget and include the plan to abolish IHT at some future date in its 2024 election manifesto. There is no certainty at this time: we recommend that you continue to plan for IHT but retain some flexibility until we can be sure any changes and any ‘replacement’ taxes.

Our IHT and probate specialists are available to assist with your estate planning, provide you with bespoke solutions to minimise your potential IHT exposure, and to ease the administrative burdens on death by dealing with the grant of probate. Please do not hesitate to contact me or any of the Private Client team, if we can assist you in any way.

Download the Private Client Inheritance Tax Probate Briefing below.

haysmacintyre named one of eprivateclient’s top accountancy firms for 2023

The annual listing ranks the leading UK tax advisory firms providing private client services to domestic and international clients, their businesses and their families. We are delighted to be named once again as this accolade represents our ongoing commitment to understanding our clients and their requirements, no matter how complex their tax affairs might be.

You can view the rankings here (subscription needed).

About our Private Client services

Our Private Client team advises on a broad range of issues, concerning every aspect of managing assets and family wealth in a tax efficient way, including Inheritance Tax (IHT), wills and probate, tax compliance and planning and more.

Our team is on hand to help. Get in touch with Katharine Arthur, Partner and Head of Private Client, or any member of our team, for a confidential discussion on how we can help you prepare for your next major milestone.

Your options for Inheritance Tax planning

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  •  November 7, 2023
     10:00 am - 11:00 am

With a tax rate of 40% on assets passed on after death, proactive planning enables you to pass on more of your wealth to the next generation. Join this webinar to understand how to optimise your estate and minimise your tax liabilities. The webinar will be led by members of our Private Client team and (more…)

Harvesting Capital Gains Tax isn’t always a win-win for HMRC: The Financial Times

CGT is reaching record levels in the UK as more taxpayers get trapped in the net as a result of inflation and reduced exemptions. This results in HMRC being required to process many more returns and collect the tax due.

The key takeaway from Katharine’s letter is that it is unclear whether HMRC’s systems are ready to deal with the required increase in the reporting of gains, for the large number of small gains now reportable.

You can read Katharine’s comments in full in the FT article here (subscription needed).

If you need further advice, please get in touch with Katharine, Partner and Head of Private Client, here.

Capital Gains Tax reporting for residential properties

UK residents

If you are a UK resident and dispose of UK land and property, you must calculate, report, and pay CGT to HMRC on a separate return within 60 days following the completion of the property sale. Initially, the period was 30 days (completion dates between 6 April 2020 and 26 October 2021), but in the 2021 Autumn Budget, this period was increased to 60 days for completion dates on or after 27 October 2021.

It is important to note capital gains can also arise on the gift or sale at undervalue of a property, which also needs to be reported within the 60-day time scale.

The requirement to file applies to UK residents, even if you intend to file a Self Assessment (SA) tax return for that year. However, you do not have to complete the capital gains return if you sell the property you live in, provided you have lived in it throughout your period of ownership, as this gain is likely to be covered by the Principal Private Residence Relief. You also do not have to file a CGT return if no CGT is payable.

Non-UK residents

The reporting requirements for non-UK residents have been in place longer than for UK residents.

For the disposal of UK land and property between 6 April 2015 and 5 April 2020, non-UK residents were subject to a 30-day CGT reporting and payment regime (non-resident Capital Gains Tax – NRCGT). If you dispose of UK residential property or land after 6 April 2020, you must report the gain within 60 days and pay the CGT liability within the same time frame. The reporting requirement is irrespective if CGT is due or if you have made a loss.

How to report

UK residents are required to set up a Capital Gains UK property account to file a CGT return, which is made using an HMRC digital service. It is a standalone service, not within the Personal Tax Account, and it does not use Self-Assessment accounts or references.

The return is made online using your Government Gateway ID, if you have one. If you do not have an ID, you must create one when you sign in.

Non-UK residents now fall within the same reporting regime. The reporting requirements extend to all direct and indirect disposals of UK residential and non-residential property and land, including property-rich companies.

Agents can submit returns on behalf of clients. However, you must set up the CGT UK property account regardless of whether you report the gain or appoint an agent. Once the account is set up, you can authorise an agent to report the gain. Following successful filing, the agent and client will receive a confirmation email from HMRC with a payment reference used to pay the CGT liability.

Penalties & interest

Late filing penalties may be charged (up to £700 or 5% of the tax due, whichever is greater) as well as interest on any unpaid tax. These apply to both UK and non-UK residents.

CGT rates and Annual Exempt Amount

The CGT rates for residential property are 18% for the basic rate taxpayer and 28% for the higher and additional rate taxpayer.

The tax-free capital gains Annual Exempt Amount (AEA) for the 2023/24 tax year has decreased by more than 50% from its 2022/23 threshold of £12,300 to £6,000. For the 2024/25 tax year, this allowance is further reduced to £3,000.

Considerations

The rules on CGT can be complex and dealing with HMRC can be a challenging experience. A tax computation must be prepared to calculate the estimated tax due, and the CGT return can be amended for inaccuracies or details finalised after the filing deadline.

Further tax planning opportunities may be available to mitigate or defer a CGT liability. It is essential to consider these before a sale or gift of UK residential property or land is made.

If you are planning on selling or gifting residential property and would like our assistance with the CGT reporting requirement under the 60-day rules or advice on how you might mitigate your liability please get in touch with your usual haysmacintyre contact within the Private Client and Trust team.

 

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