Individuals who are resident or ordinarily resident but not domiciled in the UK cannot escape UK income tax on an offshore life policy simply by not remitting the proceeds to the UK. The life policy is not classified as an offshore fund even though it is used as a wrapper.
The Inland Revenue`s Inspector`s manual incorrectly says that for such individuals the remittance basis applies to an offshore life policy gain as it would for capital gains tax purposes under section 12 TCGA 1992 " Foreign assets of person with foreign domicile". However, the Inland Revenue`s assessment procedures manual confirms that the gain is taxed under Schedule D Case VI at the lower, basic or higher rate as appropriate. The basis of taxation under Case VI is on the full amount of the gain arising hence the remittance basis will not apply.
This is a very important point for those advising on offshore policies. Non domicile status offers many UK tax advantages including limitation of IHT to non-UK situs assets only, and the remittance basis for non-UK investment income and gains. Being taxed under Case VI Schedule D however non-UK life policy gains will not qualify and so if an investor considers that the likelihood of encashing a bond to trigger a gain whilst UK resident is high then some thought ought to be given to alternative investments/structures.