Non Dom Tax and PLanning

[dickscovered]

I just thought it might be helpful to have a topic for this here rather than a separate forum. I imagine that not too many Lemon Fools will be non doms, but nonetheless this could be a place to air any issues.

I myself will become UK tax resident from 6/4/17 and will be a non dom. The structure I have set up to make the most of this still rather privileged status is remarkably simple, was relatively cheap to set up and will be so to run. Having said that, I have been with the same offshore provider for more than 20 years, so there were no complications with regard to 'KYC' and related due diligence.

The draft finance bill released on 5th December was most interesting. Two things struck me as of direct relevance to my personal situation. Firstly (although no draft clauses for this were included) the intention is that foreign source income in a settlor interested trust will no longer be taxed on an arising on the settlor as his own, both before and after he becomes deemed domiciled. Presumably the trust will need to segragate this or some ordering rules will be in place to identify such income. Essentially, that income can be rolled up in the trust until required. If the settlor (or his spouse, under 18 year-old child) receives it, he will pay tax on it and can opt for the remittance basis. But the big advantage is that if kept in the trust, no remittance basis charge is payable. After he becomes deemed domiciled, it is sheltered until he needs it.

The other big surprise, posssibly a quid pro quo, is that from 6/5/17 capital payments from an offshore trust (and I mean any, not just non dom or settlor interested) made to non UK residents will no longer be matched with trust gains. This seems completely daft to me and I don't know if the avoidance that the Treasury is seeking to limit happens or will happen. It is also really unclear how the additional tax is supposed to work in this scenario. Take a trust that made a gain seven years ago and paid it out at that time to a non resident. If it makes a capital payment next year to a UK resident, that will be matched to the old gain and the capital gains tax will be 32%. The whole point of the interest surcharge was to encourage trusts to pay out their gains, no matter where the beneficiaries resided, because with a UK connection there was likely to be some tax yield. Under this new system, trusts with, say, a couple of UK beneficiaries, might be discouraged from paying them anything at all. It also conflicts with the notion of the trust being able to roll up income, as income in general would be considered to be distributed first. Anyway, it is muddled, ill thought through, and, if sense prevails, will be quietly dropped. I have noticed no signifcant comments from the 'industry'.

I will probably end up talking to myself on this thread, but here's hoping.