Audley Financial Training AF1 Day 2 1/3/19 Audley Financial Training

Course Objectives Understand how to establish an individual’s Residence and Domicile status and how this affects their tax liability Explain how trusts can be set up together with the roles, responsibilities of trustees. Explain the main characteristics of Absolute, Interest in Possession and Discretionary trusts and how income and capital gains is calculated for each Identify what is a Relevant Property Trust and a Non-Relevant Property Trust and explain how this status affects liability to IHT 1/3/19 Audley Financial Training

Course Objectives Explain the requirements for a will to be valid and the process to be followed by the executors in distributing the estate Explain the rules of intestacy and Deeds of Variation Explain how a Lasting Power of Attorney can be set up and administered Explain the procedures and implications of being made bankrupt. 1/3/19 Audley Financial Training

Audley Financial Training Residency & Domicile 2019/20 1/3/19 Audley Financial Training

Audley Financial Training Need to Know How to establish an individual’s residence and domicile status How an individual’s status affects their liability to UK tax 1/3/19 Audley Financial Training

Audley Financial Training Residency Automatic tests to establish Residency Mainly based on time spent in the UK each tax year Can be resident one year and non-resident in the following year 1/3/19 Audley Financial Training

Automatic tests for non resident You are in the UK for less than 45 days and were non-resident for the past three tax years, and You are in the UK for less than 16 days and have been resident in the past three tax years. You work full time outside the UK 1/3/19 Audley Financial Training

Automatic tests for UK resident You are in the UK for more than 183 days All homes are in the UK You work full time in the UK 1/3/19 Audley Financial Training

Audley Financial Training Domicile Domicile of origin Established at birth, taken from father’s domicile Takes domicile of mother if parents not married Domicile of dependence Status of child until 16 Domicile of Choice 1/3/19 Audley Financial Training

Audley Financial Training Which is which? Alan was born in the UK and lives and works here He is UK resident and domicile. Andras was born in Poland but works in the UK He is UK resident but non-domicile. Anne was born in the UK but lives and works in the USA. She is non-UK resident but UK Domicile Karen is a US national but does occasional lectures in the UK She is non-resident and non domicile 1/3/19 Audley Financial Training

Audley Financial Training Deemed Domicile A non-domicile who is treated as UK domicile Major change for 18/19 and backdated to 6 April 2017 Different rules depending on whether or not you acquired UK domicile at birth. Prior to the change someone who was UK resident but non-domicile could keep that status indefinitely. No longer! 1/3/19 Audley Financial Training

Audley Financial Training Helmut is German who has lived and worked continuously in the UK since 2005/2006. He is UK resident but non-domicile Under the old rules he could have kept this status for ever. In 2020/2021 he will be deemed domicile because he has been resident for 15 tax years of the past 20: this is known as the 15/20 rule 1/3/19 Audley Financial Training

Arising and Remittance basis Arising: taxed on worldwide income and gains Remittance: only taxed on income and gains sent to the UK Only non domiciles can claim remittance basis Deemed Domiciles cannot claim the remittance basis 1/3/19 Audley Financial Training

Effect on income tax liability Alan is UK resident and domicile. He owns a holiday home in Spain which he lets out He pays UK tax on his income and the rent from the holiday home Andras was born in Poland but works in the UK He is UK resident but non-domicile. He lets out his flat in Krakow He pays UK tax on his UK salary but not on the rent 1/3/19 Audley Financial Training

Audley Financial Training Anne was born in the UK but lives and works in the USA. She is non-UK resident but UK Domicile She has a house in the UK which she lets out She doesn’t pay tax on her US income but pays UK tax on the rent from her London flat that she has let out Karen is a US national but does occasional lectures in the UK She is non-resident and non domicile She is only liable to UK tax on the income from her lectures 1/3/19 Audley Financial Training

Audley Financial Training If resident for 15 out of 20 tax years you become deemed domicile and you cannot use the remittance basis If resident for 7 out of 9 tax years you are put on the arising basis unless you pay a Remittance Basis Charge of £30,000 If resident for 12 out of 14 tax years the Remittance Basis Charge rises to £60,000 First 6 years you can use the remittance basis at no cost 1/3/19 Audley Financial Training

Audley Financial Training Andy was born in the UK and had UK domicile of origin. He has worked and lived in Dubai for many years. He regards Dubai as his permanent home and is non domicile He is a Former Domicile Resident (FDR) He is seconded to the UK for three years and will be deemed domicile from the tax year he returns. He cannot use the remittance basis 1/3/19 Audley Financial Training

Loosing Deemed Domicile Status Once deemed domicile under the 15/20 rule you must be non- resident for six consecutive tax years to reset the clock. An FDR will lose deemed domicile in the tax year after they become non-resident. These rules are amended slightly for IHT 1/3/19 Audley Financial Training

Audley Financial Training Effect on CGT UK resident and domicile (including deemed domicile) Liable for CGT on worldwide gains UK resident and non-domicile Only liable for worldwide CGT if remitted to the UK Non resident both UK domicile and non domicile A bit more complicated! 1/3/19 Audley Financial Training

Audley Financial Training CGT for non-residents Non-residents are generally exempt from CGT on the sale of UK assets. However, non-residents are liable for CGT on the disposal of residential property. Base cost is value at 6 April 2015 or acquisition value if purchased at a later date 1/3/19 Audley Financial Training

CGT for deemed domiciles Individuals who became deemed domicile on 6 April 2017 (but not later) and are not an FDR, can rebase the acquisition costs of their assets to their value at 6 April 2017. The owner must have been UK resident on 6 April 2017 Had paid the RBC in any year before 5 April 2017 Be deemed domicile from 6 April 2017 to disposal of the asset The asset must not have been brought into the UK at any time between 16 March 2016 and 5 April 2017 Done on an asset by asset basis 1/3/19 Audley Financial Training

CGT and temporary non-residence You cannot escape CGT by becoming non-resident for 1 tax year and disposing of assets in that year Disposed assets were owned before the owner became non-resident. The assets were disposed of whilst non-resident The owner was UK resident for four out of the last seven tax years before becoming non-resident. The period of absence is less than five calendar years plus one day. CGT is payable in the tax year of return with no annual exemption 1/3/19 Audley Financial Training

Audley Financial Training Effect on IHT UK domicile (including deemed Domicile) Liable to tax on world wide assets Non UK domicile Liable to tax only on UK assets Deemed domicile under the 15/20 rule can lose this status for IHT purposes after being non-resident for four tax years FDR become deemed domicile if they become resident but can return for a limited period without it affecting their status. Up to the end of the tax year in which they become resident 1/3/19 Audley Financial Training

What are the consequences? Jim is an FDR but has lived and worked in the USA for many years. He has taken American Citizenship He regards the US as his permanent home Most of his property is in the USA In June 2018 he is seconded to London for three years to oversee a merger with a European company. What are the consequences? 1/3/19 Audley Financial Training

He will be deemed domicile for IHT from the start of 2019/20 He will be deemed domicile for income tax and CGT immediately on his return He will be deemed domicile for IHT from the start of 2019/20 1/3/19 Audley Financial Training

Dom and non-dom spouses Exempt transfers are limited to a total life/death transfer of £325,000 All transfers in life and death are exempt 1/3/19 Audley Financial Training