Taxation aspects of offshore investment

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Taxation aspects of offshore investment

• Colin Jelley Head of Tax and Financial Planning
• Skandia

for financial advisers only
13 November 2007
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Taxation aspects of offshore investment

• Section A taxation
• Section B planning opportunities

3
Insurance policies taxation

• Chargeable events
• Same as onshore
• DAMES

4
Insurance policies chargeable events
D
eath giving rise to benefits
A
ssigment for consideration
M
aturity
S
urrenders in full
5
Insurance policies chargeable person

• Same as onshore
• Individual
• Trusts
• Settlor
• Trustees
• Beneficary
• Companies
• Proposed changes in Pre Budget Report

6
Insurance policies gains

• Same as onshore, but
• Time apportionment relief
• Trusts
• Changes in ownership
• Top slicing relief

7
Top slicing onshore bond
5
1
2
3
4
5
6
8
Top slicing offshore bond
5
5
4
3
2
1
6
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Insurance policies gains

• Same as onshore, but
• Time apportionment relief
• Trusts
• Changes in ownership
• Top slicing relief
• Deficiency relief
• 18, 20 or 22.5

10
Highly personalised bonds

• Treated as insurance policies but

Deemed annual gain 15 Increases by 15 per
annum
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Offshore funds

• Distributor (85 test)
• Income tax on distributions
• Capital gains tax (CGT) on gains
• PBR impact on indexation/taper relief
• Non-distributor
• Income tax on distributions (if any)
• Gains (no indexation or taper) treated as income
• Review consultation document

12
Inheritance tax

• UK domiciliaries
• Worldwide assets
• Non-UK domiciliaries
• UK-situated assets

13
Taxation aspects of offshore investment

• Section A taxation
• Section B planning opportunities

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Advice-based financial planning

• What is suitable for client?
• What are his/her objectives?

15
Non-resident investors coming to UK

• Bonds?
• Prior full surrender

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Non-resident policyholder coming to UK
Premium
17
Non-resident investors coming to UK

• Prior full surrender
• Prior large part surrender
• Top up premium
• Deficiency on later full encashment

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Non-resident policyholder coming to UK
Current value
1
2
3
4
5
6
19
Non-resident policyholder coming to UK
Large part withdrawal
Current value
GAIN
5 allowances
1
2
3
4
5
6
20
Non-resident policyholder coming to UK
Top up
1
2
3
4
5
6
21
Non-resident policyholder coming to UK
Gain
1
2
3
4
5
6
Later
22
Non-resident policyholder coming to UK
Corresponding deficiency relief
1
2
3
4
5
6
Later
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Non-resident investors coming to UK

• Prior full surrender
• Prior large part surrender
• Top up premium
• Deficiency on later full encashment
• Increased 5 allowance
• Time apportionment relief
• Reduced top slicing

24
Non-resident investors coming to UK

• Bonds?
• Highly personalised vs Collectives only
• Structure
• Tax in jurisdiction

25
Non-resident investors coming to UK

• Highly personalised?

26
Non-resident policyholder coming to UK
Premium
15
1
2
3
4
5
6
Compound _at_ 15 pa
Return to UK
27
Non-resident policyholder coming to UK
Premium
1
2
3
4
5
6
Return to UK
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Non-resident policyholder coming to UK
Premium
1
2
3
4
5
6
Return to UK
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Non-resident policyholder coming to UK
Premium
1
2
3
4
5
6
Return to UK
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Non-resident policyholder coming to UK
Premium
1
2
3
4
5
6
Return to UK
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Non-resident policyholder coming to UK
Premium
1
2
3
4
5
6
Return to UK
32
Non-resident policyholder coming to UK
Premium
No corresponding deficiency relief
1
2
3
4
5
6
Return to UK
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Non-resident investors coming to UK

• Remove PPB wide investment powers
• Deficiencies may be available in future
• (but not on account of deemed gains)

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Non-UK domiciliaries

• Non-UK domiciliaries
• General law
• Beware deemed domicile (IHT)
• UK resident in 17 of last 20 years
• PBR changes to residence and remittance rules
• Create IHT excluded property trust

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UK domiciliaries

• IHT planning using trusts
• Will planning
• Gift Trusts
• Discounted gift trusts
• Loan trusts
• Order of events
• Normal expenditure
• Multiple trusts (Rysaffe)

36
UK resident investors

• Insurance policies vs funds
• PBR tax rate changes on gains?
• Moving abroad to avoid tax?
• Non-resident (income tax) one year
• Non-resident (CGT) five years
• PBR removes Irish funds problem for non-UK
  domiciliaries

37
UK trustees insurance policies

• Defer tax charge on income and gains
• Assignment of policy to beneficiary no CGT or
  income tax
• Avoid tax credit mess on distributed dividend
  income from AM/discretionary trusts

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Taxation aspects of offshore investment

• Different client
• Different needs
• Different ideas

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Taxation aspects of offshore investment

• Conclusion
• Numerous opportunities for most financial adviser
  clients!
• But financial adviser knowledge essential!

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Taxation aspects of offshore investment

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• This communication is designed for and directed
  at professional financial advisers. It should not
  be relied on by consumers.
• Royal Skandia Life Assurance Limited (an
  incorporated company limited by shares)
  Registered number 24916
• Registered and Head Office Skandia House, King
  Edward Road, Onchan, Isle of Man, IM99 1NU,
  British Isles
• Phone [phone] Fax [phone]
  715
• Authorised by the Isle of Man Government
  Insurance and Pensions Authority Authorised and
  regulated by the Financial Services Authority for
  business conducted in the UK.
• Some of the FSA's rules do not apply to non-UK
  based insurers. FSA Register number 142309

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