Approaching deadline for non-domiciles’ tax saving opportunity

Lubbock Fine, 31 August 2018

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By Clare Munro, Senior Tax Partner
020 7490 7766

There is currently an opportunity for non-UK domiciles to reorganise their overseas bank accounts in order to pay less tax in the UK. This is a government initiative, within the tax legislation, so it’s all legitimate. The bad news is that the opportunity expires on 5 April 2019 and it may require quite a bit of work before then.

The background to this is that non-UK domiciles who have been in the UK for less than fifteen years have the option to leave overseas income and gains outside the UK and to be taxed only on their U.K. source income and on whatever they actually bring to the U.K.  If they have been sensibly advised prior to entry to the U.K., then they will have set up bank accounts so that income or gains which arose before their arrival in the U.K. is in a segregated overseas account and can be brought to the U.K. tax free as clean capital.

This tends to work well in the first few years of U.K. life while the non-dom can live on clean capital. However, it means that, once that clean capital runs out, the non-dom needs to start bringing overseas income and gains onshore to live on. Sometimes non-doms will have accounts containing both capital and income and, frustratingly, the tax rules treat any sums brought to the U.K. from these mixed funds as being remitted in the least advantageous way for the taxpayer. Thus, the income will be treated as brought onshore before clean capital.

Until 5 April 2019 there is an opportunity to ‘cleanse’ mixed fund bank accounts by calculating their separate parts and moving sums into separate accounts. You need to be able to identify and trace the different elements of the bank funds so work is needed to go through bank statements, but it can generate worthwhile savings for the future. So, if you have overseas bank accounts which contain income or gains alongside capital, we would be pleased to talk to you about reorganising them. Please contact Phil Moss, Aidan Meade or Clare Munro