Waging against a sea of troubles might not be as difficult as it
This is addressed to those who are likely to be affected by the
change in fiscal domicile status to which they will be subject in
April 2017. They will become subject to deemed benefit legislation
on indirectly held foreign residential property.
I will not add to the glut of intellectual input on the draft
non-dom legislation published this week saving to state the
following as an aside, but an important one, for those Non-Doms to
be brought into the UK tax net who retain property overseas.
At least two categories of individuals are affected by what I am
going to say next:
- Individuals with a UK domicle of origin who return to the UK,
or are considered to have returned; and
- Individuals with a foreign domicile of origin, e.g. Russian,
Greek, etc. who have spent more than 15 years out of the previous
20 tax yars in the United Kingdom without acquiring a legal
domicile of choice.
Both sets of individuals who will be affected by the changes to
take effect in April 2017 include a large number of previously
non-domiciled persons owning significant residential property
assets abroad, which will become subject to UK income Tax, Capital
Gains Tax and Inheritance Tax. Certain of these properties will
have been structured so as to achieve a degree of separation or
relative anonymity for their "economic" owners.
Those properties will shortly become liable to deemed benefits
rules, subjecting the newly domiciled owner, through any corporate
structure to income tax on the benefit of having the property
available to them, or their family.
This will be the case if such property is owned by Non-doms
deemed to be domiciled in the United Kingdom, whether on return
from abroad or those who will be over the 15 year residence
It is essential that anyone with a domicile of origin within the
United Kingdom who has or who is intending to move back to the
United Kingdom take advice immediately regarding the effect on any
SCI or French property owned directly or indirectly before moving
back. This also applies to Italian, Spanish and Portuguese
The income tax charge on the deemed beneficial occupation
through a foreign company will be significant enough to justify
consideration as to how the property is held.
May I suggest that clients take advice, from an expert, on
the possibility of carving out the usufructuary enjoyment in
French, Italian, Spanish and Portuguese properties from this
deemed benefit test by simply extricating the usufruit
property right from the structure and putting in their own
name. Care has to be taken here so as to ensure that the
notarised "carve out" cannot be treated as a settlement by HMRC.
That is where my advice in the form of an opinion can be
It is important to choose the adviser carefully as the degree of
knowledge of what a usufruit actually consists is very limited in
the United Kingdom, and contrary to certain assertions made, it is
a Part 1 ITA 1984 issue, and not a deemed settlement. What is
worse, there is little point in asking a French lawyer or
accountant to advise on what a trust or a settlement is as the
concept is alien to them and is outside their legal culture as
well. One French Senator - who admittedly had a vested
interest in propagating falsehood on the matter- was even heard to
state authoritatively that a trust was a contract, poor man.
There is, I stress, no authority upon which HMRC can rely to
sustain its current attempt to treat these foreign law property
rights as settlements in flagrant disregard of the English Courts'
historical treatment of foreign property rights as defined in cases
such as Dreyfus. Memec is frequently cited, but is of no authority
or application in this context.
The usufruit dismemberment is neither a CGT nor an IHT
settlement, but it may be a distribution of an asset, as opposed to
a form of deemed "settlement".
If done prior to April 2017, the income tax savings could be
significant, and there will be means of keeping the trust property
out of or at least in a position where there is room for manoeuvre
in an internationally mobile family.
However it does mean that the effective interest will be in the
Contact Peter on firstname.lastname@example.org for an
initial assessment and advice.
Whilst not necessarily appropriate in every case, I would be
happy to advise offshore corporate managers, trustees and their
clients in achieving this, as it will also have substantial
positive effects upon Automatic Exchange of Information and Common