tax from 18% to 40%. So
unless non-UK residency is
the long-term aim for the
bond holder/settlor, this is
going to be a problem.
The other potential
problem with bonds is
flexibility. In these uncertain
times, many clients are
not sure what to do with
their cash and are keeping
it liquid for the time being.
But situations change.
Putting the whole of a
client’s portfolio into a
bond might be attractive
from a deferral point of
view but not if they need
access to the cash. Bonds
can be redeemed but you
need to consider any
redemption penalties.
When redeeming bonds,
you need to remember that
the proceeds are not subject
to the remittance basis.
This means that the ultimate
income profit will
always be chargeable if the
bond holder/settlor is UK
resident in the year in
question, regardless of
their domicile or whether
or not they pay the RBC.
l Offshore nondistributor
funds
A non-distributor fund is
also taxed like an offshore
bond on redemption in
that there is a charge to
income tax rather than
capital gains tax (CGT), but
this time it will be treated
as foreign income and so
possibly subject to the
remittance basis.
If a client wishes to
simply sit on cash then
a non-distributor fund is
going to be quite attractive
because there will be
no taxable income until
such time as the units in
the scheme are redeemed.
Additionally, these funds
can be more flexible than
many offshore bonds, generally
with the absence of a
redemption penalty.
l Offshore distributor
funds
A number of clever people
in the finance industry are
coming up with distributor
funds enabling an effective
deferral of income plus an
ultimate extraction as gain,
rather than income.
This is very useful
Technical Briefing residenTial non-domicile Tax sTraTegies
15 most common uK rnd nationalities ’07
’000s
400
300
200
100
0
Poland Ireland
India
Source: Office of National Statistics
because it means that
the lower rate of CGT at
18% is preserved rather
than everything being
taxed as income at 40%.
A distributor fund must
distribute nearly all of its
income each year to the
investor, but some funds
have little or no income
or what income they have
is used to service debt or
other expenses.
l Offshore FURBS
A funded unapproved
retirement benefit scheme
(FURBS) can be created by
an employer or a private
individual. Correctly set up
and maintained, they are
outside the main anti-avoidance
rules. This means that
a roll-up of income and
gains within the pension
trust can be achieved.
But what needs to be
recognised about these
pensions is that they are
designed to benefit clients
in their retirement – they
should not be used as a tax
planning tool alone.
l Offshore trusts
Strangely, after all of the
legislation introduced by
the government, the tax
efficiency of offshore trusts
largely remains, at least in
respect of CGT. This is
because the trust will con-
US
DEcEmbER 2008 [www.international-adviser.com] INTERNATIONAL ADVISER
Pakistan
tinue to provide a roll-up of
capital gains irrespective of
whether or not the settlor
has opted to pay the RBC.
A trust will also get
around the worst excesses
of the tricky new remittance
rules relating to
gains, in that it is possible
for the trust to bring money
into the UK as long as it is
for investment purposes.
But with trusts you still
have a problem: any
income arising to the trustees
is still taxed on the
settlor unless they have
opted to pay the RBC. This
can be ameliorated by the
use of an offshore bond or
non-distributor fund for
cash investments, leaving
the trust to invest directly
for capital investments.
l Swift decisions
In the new world of the
remittance basis charge, it
is now crucial for clients to
decide quickly what they
want to do as the new
rules came into effect on 6
April, 2008.
At the end of the current
tax year, clients will
need to decide whether or
not to elect for the remittance
basis and pay the
RBC. Those who are not
inclined to pay the RBC,
either because they have
insufficient income or gains
or because they object to it
in principle, should organise
their offshore investments
to achieve a roll-up
of foreign income and
gains, thereby avoiding the
whole issue of the RBC.
For cash investments it
would appear that simply
using an offshore bond or
non-distributor fund should
be sufficient. For capital
investments a little more
thought is required and a
combination of an offshore
trust and an offshore bond/
non-distributor fund is an
attractive structure.
“
A trust will also
get around the worst
excesses of the tricky
new remittance rules
relating to gains,
in that it is possible
for the trust to
bring money into
the UK as long as
it is for investment
purposes
”
summary
RNDs have just over a year
left in which to decide how
they will be taxed.
Various strategies exist to
avoid the remittance charge,
a key deciding factor being
whether an investment is
cash-based or not.
39
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