• Probus Group

United Kingdom. A break in the clouds

Updated: Feb 20

After more than three years of political wrangling, various legal challenges and two general elections since the UK voted to leave the European Union in a referendum, the passing into being of Brexit on 31 January 2020 was something of a damp squib in comparison.


Given there is now a transition period, which will run until the end of this year, the immediate effects of Brexit are perhaps cushioned, although British industry may say it has been feeling the impact for years as the referendum result, and subsequent uncertainty, put inward investment of foreign capital, and availability of overseas workers, at risk.


London however continues to be a major attraction for individuals seeking the lifestyle that only a truly world city can offer. With a new centre-right government in place, emboldened by a large electoral majority, perhaps it is time to look again at what the UK can offer under its resident non-domiciled regime.


The previously much vaunted UK non-domiciled regime has become a political football in recent years with the Conservative governments of 2015 and 2017 under intense pressure to scale back the benefits associated with it as their left-wing opponents sought to make political capital in election campaigns by portraying it as a privilege of the rich.


This led to the implementation of significant changes including a reduction in the length of time an individual could reside in the UK before becoming deemed domiciled for Inheritance Tax purposes and such long-term residents ultimately becoming taxable on a worldwide basis for income and capital gains.


With the advent of Brexit, the Conservative government is likely to value the inward investment that attracting wealthy foreign nationals brings. It is a frequent mantra of government ministers that the UK is open for business. Providing a degree of certainty to foreign business people with the potential to bring investment capital should be a central facet of this.


The UK faces stiff competition from other European countries in attracting such people. The newest kid on the block is Greece, which has adopted a flat tax regime not dissimilar to that currently offered by Italy. The recent changes to the non-habitual resident regime that the socialist government in Portugal intends to implement however only show that nothing can be taken for granted.


Post Brexit, and with a majority government in place, the UK can perhaps return to a position of political stability and direction that has been lacking in recent years. With the right planning, the remittance basis for a non-UK domiciled individual can potentially be very attractive in such circumstances.


There is however the likelihood of further tax changes in the UK which could affect foreign residents. After years of rumblings in political circles, the All-Party Parliamentary Group for Inheritance and Intergenerational Fairness has published a report proposing significant changes to the current system of Inheritance Tax.


Such recommendations could include the scope of Inheritance Tax being determined by an individual’s residence in the UK over a certain period, rather than their domicile which at times can be contentious.


Foreign born persons would be subject to Inheritance Tax in the same way as UK nationals once they have been resident in the UK for 10 out of the preceding 15 years. This is a notable departure from the current domicile regime whereby an individual is deemed to have become UK domiciled after 15 years residence out of the previous 20.


Other key changes proposed, which would affect individuals eligible for UK Inheritance Tax, include a tax on all lifetime gifts and transfers on death at 10% with an annual lifetime gift allowance of GBP30,000 and transferrable nil rate inheritance band of around GBP325,000.

There is the possibility of a second Inheritance Tax band with a rate of 20% on estates valued above GBP2,000,000 however the exemptions for a spouse would likely continue. Whilst these rates may seem favourable when compared with the current level of 40%, the loss of certain other allowances may have a significant adverse impact in some cases.


The end to the current Potentially Exempt Transfer regime in particular, under which lifetime gifts made to individuals are only subject to Inheritance Tax if the donor dies within seven years of making the gift, would certainly remove an important tool of Inheritance Tax planning.

Of course, there is some way to go before these proposals are adopted as law, and changes are likely if this is the case, but given their potential reach, foreign residents currently non-domiciled, along with those considering moving to the UK, should watch developments closely.


With its expertise in wealth management and estate planning, the Probus group has helped many non-UK nationals to settle successfully in the UK and benefit from the non-domiciled regime through the appropriate structuring of their financial assets.


This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Probus Group to discuss these matters in the context of your particular circumstance. Probus Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.

480dpiPGroup_white_v2.png

CONTACT US

Contact Form

Terms and conditions

Blog

© 2020 PROBUS HOLDING SA. All Rights Reserved.