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The last waltz?

I am an Australian national and a UK non-domicile for tax purposes. Is there any point in me maintaining an offshore trust? What should I do with my other overseas assets following the new tax rules that have recently come into force?

The offshore trust owns a house in the UK (not the primary residence) and you and your wife also own a portfolio of collective funds in Australia that has been built up over a number of years.

From April 6, you will be taxed on income and gains arising on this Australian portfolio. The annual income exceeds the de minimis limit of £2,000, so tax will be payable. You will have the option each year to claim to be taxed on the remittance basis but at a cost of £30,000 levied as a tax charge.

At current levels of investment, I think we can agree that it is extremely unlikely that this will ever be worthwhile. The trust is an excluded property trust for inheritance tax purposes even though the current asset is in the UK. If the property is sold and the proceeds reinvested in non-UK assets when you die, then they will not be subject to UK IHT. This may be of limited use, however, because you plan to retire in Australia where IHT will not be a problem.

If your plans change, for example, if your children continue to live in the UK, then the UK IHT benefit will remain.

For capital gains tax purposes, the trust has been very attractive because gains could arise to the trustees with no liability to you at all, even if proceeds were remitted to the UK. This sheltered any potential gain on the house.

From April 6, you are essentially subject to tax on any trustee gain that is remitted to the UK. This is not as good as before but better than the original proposals. One other change is that the trust will be able to elect to rebase the value of the house to April 6, thereby locking in any gain to date.

If you are taxed in the future on the post-2008 gain, it will be at the new flat rate of 18 per cent. Therefore, the initially disadvantageous changes to the taxation of trustees have been mitigated both by this rebasing and the change to CGT.

Your question about keeping the trust arises because of the substantial costs and administration of having the trust and I understand that you have long felt it is somewhat complex for your needs. If the cost is going to outweigh any future tax benefit, you might as well wind it up. The main reason for starting it was for CGT purposes and if that benefit is no longer available, then perhaps it should be closed.

Having considered the rule changes, we have agreed that the continuing potential long-term IHT benefit does make it worthwhile, however, and the CGT rules are still worth the cost of the trust.

As far as your investments in Australia are concerned, we considered some time ago transferring the assets into the trust but it was felt that this could taint the trust as you were then deemed domiciled in the UK and, in any case, your Australian adviser had been looking at a mechanism for getting the funds into an Australian superannuation scheme.

It is important to understand that if you remit assets after any disposals, you will be taxed on them but this is unlikely as these assets are your retirement fund for your return to Australia. Any gains realised after April 6 will be taxed immediately rather than on the remittance basis, on a last in, first out basis.

If you remit capital in the future, gains will be taxed at the new lower rate, even taking into account supplemental charges. Australian tax needs to be taken into account but it is my understanding that a radical change to Australian CGT means that there will be no CGT on these disposals because you are non-resident there.

Mark Bolland is a director at Chamberlain de Broe


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