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

2. 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

3. 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

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

5. 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

6. 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

7. 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

8. 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
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9. 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
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10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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
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19. 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!
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20. 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

21. 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

22. 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
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23. 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
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24. 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

25. 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
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26. 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