Review – Taxation of Foreign Domiciliaries: James Kessler QC (2nd Ed)
The government’s current review of the rules on residence and domicile places the present UK taxation treatment of non-UK domiciled, UK resident individuals in sharp focus. Such individuals may fall into one of several categories, including employees here on secondment to a business in the UK; entrepreneurs attracted to run their businesses here in the UK as a major financial centre; spouses of UK residents; and the internationally wealthy. Whether they are here for a finite period, or for some as yet undefined period, or planning to come to the UK in the future, the proper planning of their exposure to UK tax is an important consideration.
This timely second edition of James Kessler’s book is a comprehensive guide for practitioners on all aspects of the taxation of every category of individual resident but not domiciled in the UK. It contains essential explanations and suggestions for income tax, capital gains tax and inheritance tax planning for those clients.
Each chapter of this indispensable work contains a detailed, but accessible, discussion of each head of tax and area of tax planning relevant to non-UK domiciled individuals. The basics – what constitutes domicile and residence for the purposes of the current UK tax legislation, and the meaning of the remittance basis of taxation – are reviewed in a thorough series of chapters. There are planning techniques and explanations for every aspect of a non-domiciliary’s life in the UK, be it temporary (requiring consideration of UK earnings, and the arrival and departure rules) or longer-term (requiring planning for the family home, and IHT mitigation).
The tax-efficient funding of a non-UK domiciled individual’s lifestyle is the touchstone of planning for such clients. The tax treatment and implications of the creation and use of offshore trusts, funds, policies and other investments are explained in detail. There are also detailed chapters on each aspect of the rules on transfers of assets abroad, with explanatory examples.
Especially helpful (and topical) is the introductory chapter on the proposed changes to the taxation treatment of non-UK domiciliaries. The Government’s current review of these rules is a source of considerable uncertainty for non-domiciled residents and those who may be intending to come to the UK. It is, of course, not known where the government’s current review will lead, meaning that practitioners must undertake planning in reliance on the current rules, with one eye on their crystal ball to protect the future interests of their clients.
Kessler sensibly deals with this uncertainty by focusing on the worst-case scenario, namely that all “foreign domicile” defences could be abolished, thus cancelling the beneficial override of the GROB rules and settlor/transferor attribution rules by the excluded property regime and remittance basis of taxation, especially for offshore trusts. With this focus, and proceeding from the (we hope untrue) assumption that there would be no grandfathering provisions in any new legislation, Kessler suggests planning tools for IT and CGT in respect of offshore trusts with non-domiciled but UK resident settlors and beneficiaries. Prudent planners will find this essential reading.
Other subjects which practitioners will find particularly helpful include an extensive discussion of the taxation of mixed-domicile marriages, with planning tips for reducing the disbenefits of inter-spousal transfers in such cases. Interestingly, Kessler casts a shadow of doubt over how much longer the differential between the treatment of mixed-domicile spouses can continue – certainly as regards non-UK but EU-domiciled spouses – in light of human rights arguments.
Kessler’s chapter on holding structures for the family home, another hot topic, analyses each of the currently-popular varieties of ownership structure. No practitioner in this field – and certainly none of the clients – wishes to see their offshore structure tested by the Revenue. It is therefore extremely helpful to find the chapter also debunking some of the more ambitious means of securing rent- and tax-free accommodation for non-domiciled clients.
The book finishes with a brief but useful reminder of the obligation to make disclosure to the Inland Revenue, which includes commentary on the current scourge of the offshore trust industry, section 218 IHTA. Press reports suggest that the Revenue, perhaps unsurprisingly, appears to agree with Kessler’s proposition that the section could be interpreted as extra-territorial in its application to those involved in the creation of settlements by UK domiciliaries.
The thorough coverage of each aspect of non-domiciliary taxation, and the practical approach taken in each chapter, with comprehensive explanations and clearly-explained worked examples, make this book an exceptionally useful tool for practitioners in an area increasingly under the taxation microscope.
Clare Maurice & Arabella Saker
Allen & Overy
May 2004
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