Are you a UK tax resident beneficiary with an existing offshore trust structure, or company, from which you are receiving capital or income? If so, remaining compliant with UK tax laws could mean you are liable to report and pay certain taxes.
Consequently, matters of offshore tax planning can seem overwhelming due to HMRC’s distrust towards non-UK structures, and severe financial penalties individuals may face when completed incorrectly.
Therefore, if you’re based in the UK and already have or are looking to set up an offshore structure or investment, it is important to seek professional tax advice. Speaking to an expert can help you navigate the complicated and constantly evolving tax rules for UK residents.
What is meant by the term “offshore tax”?
Offshore tax generally refers to the UK tax obligations payable on monetary gains received from overseas – including income from activities outside of the UK and capital gains from overseas assets (e.g. rental properties) or transfers – where they are linked to a UK resident taxpayer.
However, if you’re a UK tax resident with a domicile (permanent home) outside of the UK, you may have different UK tax requirements on foreign income or foreign capital gains from selling assets.
To ensure you understand the tax implications involved with UK tax-residence and domicile status, we recommend speaking to our tax advisors and putting a plan in place before arriving in the UK, or before you leave the UK to move abroad.
What tax could I be liable for as a “non-dom”?
As a beneficiary (or as an offshore trustee) of a structure overseas, you may be liable to pay taxes in the UK on your existing offshore trusts, as well as your UK property and other UK assets – including income tax from within the UK, capital gains tax (CGT) and inheritance tax (IHT).
- Income tax
If you are a UK resident beneficiary, you are subject to income tax on UK-based capital gains in your offshore account. You may also be subject to “matching” rules for distributions of overseas income and gains.
- Capital gains tax (CGT)
Whether you’re a UK resident or non-domiciled settlor, you could be liable to pay CGT on all capital disposals from the offshore trust – from gifting and transfers to an exchange of non-monetary assets.It is important to note the offshore trustees may be liable to UK CGT where the trust holds residential property in the UK, regardless of whether there is a UK resident beneficiary.
- Taxes on distributed capital
Offshore trusts can also be liable to UK inheritance tax (IHT) where they own assets that are physically in the UK (such as residential property), as well as IHT charges where capital assets are passed out of the trust to a UK resident beneficiary.
Additionally, you need to consider these UK tax implications when setting up a new offshore structure, as this can help you understand if this is a viable and tax efficient option.
What do I need to consider as a “non-dom”?
- Domicile – The 15/20 rule
If you have been living in the UK long-term, you may be close to losing your non-UK domiciled status.Once you have lived in the UK for more than 15 years of the previous 20 tax years, you will change from a non-UK domiciled to a UK-domiciled individual, meaning you will no longer be able to claim the settlement basis of taxation.
- Residence – The remittance basis
On remittance basis, an individual may be liable to pay UK tax on all income and capital gains. However, they can opt only pay UK tax on foreign income and gains if they are brought into the UK, which can help prevent double taxation.A non-UK domiciled individual who is resident in the UK can request to be taxed based on remittance (an alternative tax treatment) through their self-assessment tax return.
What are the benefits of professional offshore tax services?
UK tax law is ever-changing, and with the current political will blowing towards increasing disclosure and cooperation with foreign tax authorities there is a greater focus by HM Revenue & Customs on the interaction of offshore structures in the UK.
Therefore, if you have a trust (or any other type of structure) offshore, you must obtain expert advice to help you navigate the complicated tax obligations and to remain tax-efficient, whilst guaranteeing that you remain compliant and legal. This includes:
- Offshore trusts planning
- International tax advice for individuals
- Tax efficiency planning
If you’re a UK resident beneficiary or non-UK domiciled settlor or trustee, your tax obligations have more flexibility, which provides you with more room to make the most tax-efficient decisions.
Professional advice should always be sought when carrying out planning of this nature, as there are many issues to consider – from paying out capital gains tax (CGT) on non-cash assets to ensuring you are always compliant with certain regulations (e.g. filing regulations).
How can we help?
We offer UK advice concerning offshore trusts (or other offshore structures), as well as advising individuals who are operating in different tax jurisdictions to ensure that you always remain compliant.
Our expert tax advisors are highly qualified to support you with the completion of paperwork in relation to an offshore trust, such as:
- UK self-assessment tax returns (for trustees and beneficiaries)
- CGT notifications and returns
- IHT returns and compliance (such as 10-year charges)
- Annual tax on enveloped dwellings (ATED) returns
- Preparing financial accounts and retaining accurate records
To find out more about offshore tax support, contact our expert team today.
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