Pre-Budget report changes to the residency and domicile rules will massively increase the number of individuals falling into the inheritance tax regime, says Skandia.
The residency test changes from next April, when each visitor’s day of arrival and departure will count towards the 183 days required to become a UK resident for tax purposes.
Skandia head of tax and financial planning Colin Jelley says foreigners will become UK residents much more quickly.
He says: “You might be a foreign resident but for IHT purposes, once you have lived here for 17 of the last 20 years, we treat you as UK-domiciled for IHT purposes.
“The Government has made it easier to become a UK resident and therefore more likely to become deemed UK-domiciled for IHT purposes. The outcome is that the market for IHT planning will become much bigger.”
He says a massive opportunity for offshore bonds has also arisen from the introduction of the £30,000 annual charge for resident non-domiciles who have lived in the UK for seven years or more. UK residents and domiciles pay UK tax on worldwide income and capital gains while non-UK domiciles who are resident will not pay taxes on any capital gains and income from monies held overseas, provided it is never brought into the UK.
Jelley says from next April, after seven years of residence, clients can choose to pay a £30,000 annual tax bill or income and capital gains tax if it is less. He estimates that for clients with overseas investments of £1.5m and under, the £30,000 bill is likely to work out more expensive.
He says that advisers should recommend offshore bonds to these individuals, enabling them to roll up returns gross and benefit from 5 per cent withdrawals if they repatriate the money or avoid tax if they do not.