Marcel (48) came to the UK to work for an international bank in the M&A department 12 years ago. He had previously had a very successful career in Dubai and Hong Kong and built a substantial portfolio from earnings and bonuses which was held in custody in the Channel Islands.

Marcel was born in France to parents from South Africa so his domicile is South African due to the fact that one’s domicile follows that of one’s father*. He is married to Evelyn (41) who is French and has two children Francoise aged 12 and Serge aged 14.

As a non UK domicile, he made sure he kept all his non UK assets outside the UK to avoid paying UK tax on an arising basis. He only paid tax on any income or gains that were remitted to the UK. As a UK resident (for tax purposes) he paid tax on his UK income and gains on any assets he held here.

Although he had been careful to keep his UK and Non-UK assets separately, he wanted advice before he became ‘deemed domiciled’ in the UK which meant that he would be automatically assessed for tax on an arising basis on his worldwide assets. This would increase his UK tax bill considerably each year.

Additionally he wanted to know what other UK taxes may have an impact on his estate.

We used our extensive knowledge and experience in this area to explain that as he had not been resident in the UK for more than 15 or the last 20 years he did not fall foul of the ‘Deemed Domicile’ rules yet. We explained that he could create a trust that would mean that any Non-UK situs (situated) assets held within it would be classed as ‘Excluded Property’ which would not form part of his UK assets for Inheritance Tax (IHT). This would currently save 40% IHT. Under current legislation once the assets are excluded they would remain excluded forever.

Additionally as a Settlor (creator) of the trust, he could be included as a beneficiary. This would not be possible if he was UK domiciled or ‘Deemed Domiciled. He had to establish this before he resides in the UK for 3 more years (taking it past the 15 of the last 20 tax years) so decided to do this as soon as possible.

Finally, we used an international investment tax wrapper (single premium life assurance policy based outside the UK sometimes referred to as an Offshore Bond) within the trust which does not produce any income but allowed him to withdraw money (if needed) without any immediate UK Income Tax liability provided he stays within certain limits. It also meant that he could assign segments of his investment in the future to his wife or children (once over 18) for them to encash at their own marginal tax rates rather than the additional income tax rate he pays. This could be useful to utilise unused tax allowances to pay for things like University costs.

* This may be different in some circumstances but not in this example.

The case studies are based on real scenarios with specific client details removed to protect their identities.

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