BOOK REVIEW

from Trusts & Trustees

Tax Planning for the Foreign Domiciliary

Second Edition

James Kessler & Peter Vaines

Published by Key Haven Publications Plc

If, in the extensive convoluted UK tax law, there is any privileged person it is likely to be a foreign domiciliary. Despite this, the extensive advantages accorded to such an exotically titled person still require careful consideration. The second edition of this book continues to provide the necessary information and discussion to be able to absorb the law applicable to non-domiciliaries without having to pursue the subject through many texts more suited to insular UK taxpayers. Standard tax books refer to the tax position of non-domiciliaries only as an afterthought.

Wisely the authors do not attempt an exhaustive (and exhausting) treatment of the basic concepts. Intended readers, practitioners in one discipline or another, can be taken to be familiar with basic taxation. Take the concept of domicile, for example, with which the book necessarily begins. Reference is made to Dicey and Morris for a full explanation of this but the authors give us enough on it to be able to recognise a non-domicile when we meet one.

The concept of domicile needs to be understood. As the first sentence of the book states, this is a system developed to associate every individual with a specific legal system; the legal systems that was his permanent home or domicile. This concept has been adopted by tax law. But domicile for UK tax purposes is not enough; being resident or ordinarily resident can qualify the position of a non-domiciled person even further. Experience shows that the word ‘domicile’ is not always used with the UK legal meaning, especially by persons brought up in other legal (and linguistic) traditions where it is often used when reference is intended to residence.

The basic principles are discussed; the position of a foreign domiciliary’s foreign income, the remittance basis of taxation and the taxation of employment income. This treatment shows the advantages of the bringing together the rules which are found all over the legislation and otherwise tedious to bring together.

In this branch of taxation nothing can be taken for granted. For example, examine the consequences of setting up an offshore trust. A foreign domiciliary may find that he has an immediate tax problem where the transfer of an asset to an offshore trust represents a disposal at market value for capital gains tax unless the non-domiciled is neither resident nor ordinarily resident.

The taxation of trusts and settlements make an important appearance in a chapter on anti-avoidance provisions by concentrating on the taxation of settlements made by a foreign domiciliary. The treatment as the income of the settlor, is important to foreign domiciliaries and precedes an analysis of the complexities of the rules concerning the transfer of assets abroad.

So much for income tax law. Next there is capital gains tax where the remittance basis differs from that of income tax and gives scope for tax planning. The capital gains taxation of trusts is described as a mixture of principle and compromise. Fortunately the amendments made to the taxation of offshore trusts under the Finance Act 1991 hardly apply to non-domiciliaries: only the exit charge imposed by the Act is relevant to them.

The Inheritance Tax Act adds the concept of deemed domicile as a third category to that of being domiciled or non-domiciled but does not go so far as to resolve the status of a child of a deemed domiciliary. The territorial exemption and the rules concerning gifts with revocation of benefits raise important issues although there are no specific references to non-domiciliaries in the Act.

The authors have cut through the jungle of UK’s tax laws and, although the path cannot be straight, it is at least a cleared path. Practitioners will welcome this blessedly concise 140 pages of text. The authors are allowing practitioners the change to grasp the details of this difficult area of tax law in the shortest time and their efforts will be appreciated whenever a tax problem for a foreign domiciliary is appearing over the horizon.

John Goldsworth

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