Taxation of Foreign Domiciliaries

By James Kessler MA(Oxon), FTII, barrister of Lincoln’s Inn and Gray’s Inn

Reviewed by Ralph Ray

Taxation 14 March 2002

James Kessler is a well-known scholarly yet practical author and practitioner, and this detailed work is stamped with the same brilliance and detail as his other works.

The contents of Taxation of Foreign Domiciliaries include: domicile; residence; year of arrival and departure; foreign investment income; Schedule D remittance basis; employment income; Schedule E; pensions; the settlement provisions; transfer of assets abroad; capital gains tax on individuals and trusts; excluded property for inheritance tax; reservation of benefit; inheritance tax planning by turning United Kingdom situs into non-United Kingdom; liabilities deductible for inheritance tax; inheritance tax planning in anticipation of acquiring United Kingdom domicile; marriage of United Kingdom domiciliary and foreign domiciliary; the family home; estates of deceased persons.

The book is, however, not for the general practitioner. It is not always easy reading and has some 494 pages. The minutiae are covered, including detailed extracts of the often difficult statutory provisions, an aspect which is perhaps somewhat overdone. The author could, I feel, do better in many instances by paraphrasing and summarising, for example the new section 10A, Taxation of Chargeable Gains Act 1992 as to the non-residence rules.

The gems in the book are the pith summaries of difficult areas, as shown by the following three examples:

‘What steps can be taken to reduce or eliminate liability to United Kingdom taxation? The answer is that, with care and foresight and the adoption of an appropriate tax planning strategy, direct taxation in the United Kingdom may be largely avoided; or at least, a United Kingdom resident foreign domiciled individual need pay no more tax than if he were resident. In this sense, the United Kingdom may be described as tax friendly, if not a tax haven, to the foreign domiciliary.’

‘It is certainly a fair criticism of the current system that the adhesive quality of a domicile of origin and the restrictive rules for the acquisition of a domicile of choice allow some fortunate individuals to enjoy foreign domicile tax treatment despite very close United Kingdom links and only tenuous historical and fortuitous links to their domicile of origin.’

‘In the short term the foreign domiciliary may be content to use the remittance basis to avoid any capital gains tax liability. In the longer term, this is bound to become unsatisfactory and something more is required. The principle of the foreign domiciliary’s long-term capital gains tax planning is that the foreign domiciliary should hold his wealth through the medium of an offshore trust. The offshore trustees will not be subject to capital gains tax in any event, and neither will foreign domiciled beneficiaries, even if all the gains are remitted to the United Kingdom.’

A reviewer cannot resist critical comments:

paragraph 6.10 ‘Property moving between settlements’ seems out of place in the employment income chapter;
the concept of ‘counterfactual question’ is somewhat unusual;
in some ways the shorter previous work jointly written with Peter Vaines was more focused (indeed, there are still some references to ‘our’ view in the present work);
on a practical level, when I had to advise on a foreign domiciled but United Kingdom resident individual who had valuable share options in an international banking company, I could find no specific reference to share options of their situs, e.g. in chapter 26.

However, overall the work is extraordinarily skilful and useful, and the author is to be congratulated.

Home