Brexit stage right
Lisa Spearman of Mercer & Hole and Valentina Tacchino from Kleinwort Benson discuss the impact of Brexit on non-doms
Valentina Tacchino left, Lisa Spearman right
During the UK general election campaign of 2015, Labour pledged to scrap the tax breaks for non-domiciled individuals within a year, if they got into office. As a result, the Conservative party was feeling the pressure to give some sort of signal to the world about its attitude to the favourable treatment received by those who have opted to register their permanent home or “domicile” as being outside of Britain – otherwise known as non-doms.
In his 2015 Budget, then Chancellor, George Osborne stopped short of abolishing non-dom status altogether, opting rather to change the rules such that wealthy foreigners, permanently resident in the UK, would have to pay full tax on their foreign earnings. The changes are not due to come into effect until 2017, but has the shock EU referendum result thrown the timings out on this given that the Treasury has some pretty sizeable fish to fry? Lisa Spearman (LS), Private Client Partner at Mercer & Hole Chartered Accountants and Valentina Tacchino (VT), Head of International for Kleinwort Benson Private Wealth Management, think not.
Are the changes for non-doms announced in 2015 likely to be pushed to the back burner now that the Treasury is dealing with the fallout from the EU referendum?
LS: I think it is very unlikely that the changes announced in 2015 will be put on the back burner. The July 2015 budget announcement reforms haven't been implemented as swiftly as they may have been because of Brexit but my understanding is that it will go through in April as planned.
What are the implications of Brexit for cross-border families, both in the UK and in Europe?
VT: My sense is that non-doms, as a group, have been the subject of increasing scrutiny since 2008 but that now the focus is slightly different. Although the rules are likely to change again in April 2017, non-doms’ attitude towards their treatment is appreciative of tax compliance and, in general, they want to pay their fair share.
LS: In terms of our clients, we need to be in a position, now that the summer holidays are over, to hit the ground running. We need to consider all aspects of a client’s situation and get their affairs in order for the early part of next year. We need to be able to change things and give relevant advice before April 2017. Some are urgent, others are preferable.
My approach is very logical: go through your affairs tax by tax. For Inheritance tax – if you want to put your assets into a trust you have to do it before April 2017 if you have already exceeded the 15 year point. That is non –negotiable. It can be done very quickly, depending on how complicated your affairs are, but either way it needs to be thought through and given proper consideration. As for Capital Gains Tax, clients need to look at their realisation schedule. If you are going to be deemed domiciled before April, you will need to start organising your assets into “pots”. The key is to realise the gains before the end of the tax year and the losses afterwards. For Income Tax: you need to separate the income that will be taxable anyway from the income that you have received on a remittance basis which you can't bring into the UK.
It goes without saying, though that investment considerations should always take priority over tax. So you should always speak to your investment adviser.
Is there anything in particular that clients with an international outlook need to consider?
VT: It is worth remembering that currency movements can have quite an impact. When he or she is talking about a capital gain, your UK accountant is always thinking in terms of sterling. If, say, you have made a gain in dollars, the relevant point is how big that gain is in sterling terms, in other words, is it bigger or smaller than it would have been after the movement in the exchange rate.
How have international clients’ attitudes changed over the last few years, in your experience?
LS: I would say, one big difference is that it is incredibly rare these days for people to want to achieve a zero tax option. The atmosphere has changed. People are keen to create a tax presence in the UK and international clients trust the UK and its fiscal regime. Many of them have concerns about trusting governments with their personal information and don't, for example, want to put their families at risk of kidnap, black mail or extortion. Making the UK their base for paying taxes, in this case is a lot safer for them and gives them reassurance.
Will Brexit have an impact – people leaving in droves as some newspapers would have us believe?
London won't empty out because of Brexit or changes to the non-dom regime. You can't change the facts of life. London is London: we operate in Greenwich Meantime, with a very non-parochial approach. I can sit in my office in London and have a conversation with my New Zealand trustees as if they were in the next room, unlike some of our European and international counterparts. That is how we work and we have been working that way for years.
VT: Contrary to what the Press would have us believe sometimes, people rarely move for tax reasons in my experience. We find that a lot of people want to come to the UK for the lifestyle it can offer them. They want to educate their children here, take advantage of the rich cultural benefits and the highly regulated services on their doorstep, the great travel connections, not to mention a very stable government.
The new legislation will prescribe that any individual who has been resident in the UK for at least 15 of the past 20 tax years is deemed UK domiciled for tax purposes. 15 years is a long time, and a move to another jurisdiction after that period would not be overly disruptive to the sorts of families we are talking about.
VT: The tax piece is important and the investment piece is important, but they work best when they work together.
LS: You can't over-engineer your lifestyle, you just have to live your life the way you want to and my job is to help you find the easiest way for you to do that.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Kleinwort Benson. This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal or tax advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained. This Mercer & Hole Insight is a short selection of items extracted from complex legislation. Further specific advice on any matters referred to must be taken at all times. The information is given for general guidance only and publication is without responsibility for loss occasioned to any person acting or refraining from acting as a result of the information given. No part of this publication may be reproduced without the prior permission of Mercer & Hole.