What with the Inland Revenue’s crackdown on British residents with offshore assets last year, the annual non-dom fee that is expected to be introduced in April and the fact that it is widely believed the government will take further action against those who reside outside the UK but frequently visit, the thought of saving or investing offshore when you’re a British resident becomes one fewer and fewer people are likely to even consider.
After all, what if you were mis-sold an offshore policy and accidentally avoided tax you were liable for? What if you were not even legitimately able to place assets overseas and you did so? The fact of the matter is, offshore investment and saving for British residents can actually be beneficial in certain circumstances – but before you go ahead and explore your options, you need to understand the laws, the rules and the regulations…
First things first – we need to answer some questions such as - when are you British resident, what’s a non-dom, who can go offshore and what sort of offshore accounts can benefit British residents potentially?
Well, you are a British resident for tax purposes if you spend more than 90 days in the UK a year on average over a four-year period or if you spend more than 183 days in the UK in any one tax year. That’s how it stands at the moment, although it is expected that the government will tighten and re-clarify these rules because currently the day you arrive and leave the UK does not count in this calculation of the number of days you are resident – this allows business people to fly in and out of the UK quite regularly whilst keeping the number of days they are resident below the taxable threshold.
If you are British resident and domiciled then you are liable for UK tax on your worldwide income and gains.
In terms of what the word ‘domiciled’ means, this is the country in which you are born and/or in which your father was born. ‘Non-dom’ means non-domiciled. It is almost impossible to change your country of domicile whilst it is relatively easy to change your country of residence.
If you are resident in the UK but you are a non-dom – i.e., you were born elsewhere – you are not currently liable for taxation in the UK on income and gains you make from outside the country. This stands as long as you don’t bring the money into the UK. However, if you have been living in the UK for at least the last seven years out of nine, from April this year you will have to pay an annual fee of GBP 30,000 to remain outside of the UK tax system for your worldwide income and gains that are not remitted to the UK.
In terms of who can and cannot go offshore – when it comes to British residents living in the UK and the British Inland Revenue, the rules state that anyone is perfectly legitimately entitled to place money or assets offshore as long as the action and any income, interest or gains made from the action is declared.
Whether going offshore is something that could benefit you personally is another matter entirely and only a question that can be answered with the assistance of professional advice. This article does not constitute advice. Speak to a financial adviser and your accountant before taking any action.
In terms of the potential benefits of offshore investment and saving for British residents – again, these depend on personal circumstances. But to illustrate what can be possible for some, we can give an example of how a tax efficient investment wrapper or offshore bond can help some.
An offshore bond is a product offered by an insurance company located in an offshore financial centre such as the Isle of Man for example. The product allows savers and investors to accrue interest tax free until the point at which the product is encashed. What’s more, a tax free income of up to 5% can be drawn down from the investment product. Tax then becomes payable on this income and on the overall gains made via the product when it is finally encashed at the saver’s highest tax rate. So, for someone in the higher tax bracket at the moment, such a product can make sense if they expect to be in a lower tax bracket when they encash the offshore bond. Or, for someone who is planning a move or a retirement abroad to a low tax nation, they can wait to encash the policy until they move.
To find out whether there are any offshore savings or investment benefits to you as a British resident, speak to a qualified, regulated and experienced independent financial adviser.
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