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For non-UK domiciled individuals, the United Kingdom continues to offer a particularly generous tax regime as outlined in the table below. With advance planning, the UK can be a tax haven for non-UK domiciled individuals with non-UK income and investments.
The key to accessing this tax haven is domicile, and in particular a non-UK domicile. Unfortunately, this can be one of the more difficult areas in UK tax planning, as there is no specific legislation or single definition for
"domicile". In general, a person is considered to inherit a domicile of birth from his or her parents. This can be changed to a new domicile by abandoning links with that country and establishing a permanent home elsewhere.
Some of the planning opportunities for non-UK domiciled individuals are as
follows:
| 1. |
Remittance
basis planning
A simple yet effective method of deferring UK tax liabilities on overseas income/capital gains is to open separate bank
accounts. |
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(i) |
UK bank
account
This account should be used for UK income. As such income will be fully taxable in the UK in any event, it would be used
first.
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(ii) |
A capital bank
account
This capital bank account should be set up outside the UK and used for keeping the fund balances in all bank accounts as at the date when the individual moves to the UK. Remittances out of this account to the UK will not be chargeable to UK income tax or capital gains tax.
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(iii) |
Capital realisation
account
This capital realisation account should be set up outside the UK and used to hold the proceeds from sale of overseas assets after the individual's
arrival in the UK. Gains from such sales may be subject to capital gains tax if remitted into the UK. |
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(iv) |
Overseas income
account
This overseas income account would be used to receive income from sources outside the UK. Remittances from this account to the UK will be taxable in the UK.
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| 2. |
Purchasing UK assets via a corporate entity rather than by
individuals
For non-UK domiciled individuals it may be advantageous to hold UK assets via an offshore company. In this manner, it may be possible to convert
assets which have a UK situs and are potentially liable to UK Inheritance Tax, to assets which have a non-UK situs and not liable to UK Inheritance
Tax.
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| 3. |
Gifts
For married couples, there may be an advantage in making gifts between spouses if one spouse is UK domiciled and the other is not. However they need to be aware of potential Inheritance Tax liabilities.
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| 4. |
Trust
planning
Depending on the assets and the net wealth involved, it may be advantageous to establish an offshore trust. As well as succession planning advantages, an offshore trust may also achieve savings in Income Tax, Capital Gains Tax, and Inheritance Tax.
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As demonstrated above, the UK tax system is very generous for foreign nationals who are non-UK domiciled provided that appropriate planning is undertaken at the outset. However, as a word of caution, the UK Inland Revenue has issued a consultative document on domicile, and changes could be made to this favourable UK tax system in the future.
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