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HMRC have recently introduced new legislation that may affect onshore and offshore individuals and structures alike where there is a UK connection. Here's a brief summary.
The first relates to new rules for UK Resident but Non-Domiciled (RND) individuals under the Finance Bill (No2) 2017. One of these new rules relates to RND individuals, who will now become deemed UK domiciled and applicable for all taxes once resident in the UK for 15 out of the previous 20 years, meaning the RND’s exposure to UK taxes has been brought forward much earlier than previously advised or expected.
After becoming deemed domiciled, offshore Trusts, if ‘tainted’ may become ‘look through’ in the eyes of HMRC, which means that HMRC may apply certain taxes on the Settlor as if the assets were owned by him personally. It is important therefore that before RND’s have completed 15 years of UK residency, they seek tax advice in respect of the Finance Bill and their relationship with the offshore Trust.
The ‘tainting’ provisions capture a wide variety of actions, however simply summarised it is where the newly deemed domiciled Settlor continues to add value (in cash or in kind) to their Trust structure. It is important therefore in such circumstances that careful consideration is given to funding structures even where for example there is a requirement to settle ongoing fees and administrative expenses and you should speak to your trustee and tax adviser to ensure that funding and payment of expenses are handled in the appropriate manner.
The second change is the introduction of new penalties for all individuals, companies and trusts who have a UK tax liability which has not previously been fully disclosed to HMRC whether by intent or even by simple mistake. The ‘Requirement to Correct’ (RTC) is aimed at taxpayers who have undeclared past UK tax liabilities who are now expected to review and correct any irregularities by full disclosure to HMRC. Failure to carry out the necessary corrections by 30 September 2018 will render the taxpayer liable to new penalties that could be as high as 200% of the undeclared tax not originally disclosed.
A careful review will need to be made of all structures with a UK connection and a UK tax filing requirement. It may also be necessary to revisit the original tax advice received as any errors or omissions will also be caught within these new rules.
Despite these ever-evolving rules, existing and new Trust structures will continue to provide valuable protection and opportunities for estate planning and before becoming deemed domiciled there remains a golden window of opportunity to consider further estate planning within your Trust structures. The attractions of proper wealth structuring for the longer term remain. The focus is now very much on the protection of wealth, including from political risk, now even in the UK, succession planning, good governance and all in a tax efficient manner, even if tax planning is less of a driver than in the past. These structures include trusts and private trust companies, but also companies, partnerships, foundations and others to suit the bespoke needs of the individual, the family or the entrepreneur concerned and often needing to cover several jurisdictions and across generations.
As always, good forward planning and tax advice is vital. Hawksford is not regulated to provide tax advisory services and so we strongly advise you to reach out to your tax adviser to discuss the above. We will of course work alongside your tax adviser to consider what action can be taken now to benefit you and your family for the future.
There is a pressing need for expertise and experience in these areas, reflected in a current “flight to quality”. We are proud of our abilities to meet these requirements and our abilities to look after our clients internationally through our offices in Jersey, Singapore and Hong Kong and through our global connections.
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