It will be an interesting year ahead. The macroeconomic environment will change considerably during the next 12 months as the government triggers Article 50 and negotiates our position outside the EU.
The impact on the UK economy, stock and currency market is hard to predict and difficult to plan for until more information is known.
UK expats living in Europe and European expats in the UK will no doubt feel unsettled, and may require an element of contingency planning built in to their finances.
There are a number of known regulatory changes looming, which represent advice opportunities. Non-domiciled clients living in the UK for 15 out of 20 tax years, and overseas clients holding UK property through an overseas corporate structure, may require more urgent advice.
Tax evasion remains a key theme for 2017. The Common Reporting Standard, which fully kicks in this year, and tougher sanctions for advisers who enable tax evasion, means it is imperative that clients are aware of the need to disclose their income from overseas investments.
Meeting clients’ needs
Key advice opportunities for contacting clients in 2017 include:
Qrops
Industry Qrops figures released in December 2016 show that what was once a rapidly rising sector is now levelling out, maturing at around £1.5bn a year. There are still significant opportunities for using a Qrops where the client is leaving the UK, especially if they are at risk of breaching their lifetime allowance limit in relation to their UK registered pension scheme(s).
Key changes from 6 April 2017 mean 100% of the income from a Qrops will be taxed. Currently only 90% is subject to UK income tax compared with 100% of any income from a UK registered pension scheme.
Member payment provisions will extend from five to 10 years, limiting pension commencement lump sums to 25% of UK tax-relieved funds for 10 years rather than five.
The government will also allow Qrops the same freedoms as UK-registered pension schemes when it comes to people accessing their pension money.
Some Qrops are currently limited in the pension benefits they provide, as a minimum of 70% of the pension fund must provide an income for life. New proposals remove this restriction. Schemes will continue to qualify as Qrops so long as the provider or the scheme itself is regulated. However, we are still waiting for further details on the removal of the 70% rule and IHT exemptions.
UK domicile
From 6 April 2017, the calculation used to determine when a non-UK domicile living in the UK becomes deemed UK-domiciled for tax purposes will tighten. The timescale will reduce from 17 out of 20 years to 15 out of 20 years.
Advisers have a window of opportunity to help clients approaching the 15-year point. Once they are deemed UK-domiciled they will no longer be able to pay tax on the remittance basis and will become liable to UK IHT on their global assets.
An Excluded Property Trust is a legitimate way of mitigating any income and capital gains tax arising from assets held outside the UK. This is a big incentive to take action now before they are deemed UK-domiciled.
Overseas property
From 6 April 2017, non-UK domiciles investing in UK property through an overseas corporate structure or trust, known as ‘enveloping’, will no longer be excluded from UK IHT. HM Revenue & Customs will essentially see through the corporate structure, making them ineffective from an IHT planning perspective.
This represents an opportunity to re-advise clients. It might make sense for their corporate structure to be unwound as they are no longer effective and will not justify the ongoing fees involved. If individuals are concerned about their exposure to UK IHT, they may benefit from some estate planning, to help ensure beneficiaries have enough money to pay any IHT liability.
High net-worth clients are often asset rich but cash poor, so taking steps to ensure liquidity on death, by setting up a life assurance policy or trust, may help beneficiaries.
