Equiom Solutions’ Tax Planning Seminar for Isle of Man Residents

Sunday 20 March 2016

Tax and estate planning specialist Equiom Solutions Limited, part of the Equiom Group, held a tax seminar for Island residents, their advisers and relevant intermediaries.

The seminar, entitled ‘The UK Summer Budget – Implications for Isle of Man Residents’, was well attended, attracting around 100 delegates including individuals from the legal, finance, property and wealth sectors.

The event was chaired by Equiom Solutions Chairman Clive Stanford who opened with a brief background of the business, an overview of the growth of the global Equiom Group and a summary of the speakers’ experience.

Managing Director of Equiom Solutions Helen Woods, Tax Directors Kevin Renshaw and Phillip Dearden and Tax Senior Manager Glenn Cassidy were among those to address the seminar.

Helen began with an explanation of UK residence, including a review of the old rules for residence and a summary of the changes that came into effect in April 2013. She provided an overview of the automatic tests, namely The Automatic Overseas Tests (AOT) and The Automatic Residence Tests (ART), and detailed the Sufficient Ties Test which comes into effect when neither of the automatic tests are satisfied.

‘The Sufficient Ties Test looks at a combination of the number of days you can spend in the UK in the tax year and the number of ties you have with the UK,’ she explained. ‘The ties you need to consider are family, accommodation, work, UK presence and country.’

Helen continued her presentation by detailing the rules for domicile, with particular reference to the new guidelines applying to returning non-UK domiciliaries that will be effective after April 2017.

Providing a practical example, she explained:

‘Mr Smith was born in the UK, with UK-domiciled parents. He moved overseas when he was three months old and has remained outside the UK for 70 years. While away from the UK, he set up a trust. If he now decides to move back to the UK, he will immediately be classed as UK domiciled and his trust and any personal assets will come within the scope of Inheritance Tax (IHT).’

She moved on to outline the possible planning opportunities for considering a return to the UK and explained that the ‘deemed domicile’ rules are not all negative.

‘The good news is that the provision is not permanent; the trust and any assets are only within the scope of UK taxes while the settlor is UK resident, so an individual could move back to the Island and again become outside the scope of IHT,’ Helen said, before concluding by posing the question: ‘Do you need to reorganise your financial affairs before returning to the UK?’

Phillip followed with an analysis of current estate planning options for Isle of Man residents following the changes proposed in the UK summer budget, reiterating the three key changes that were announced, explaining the impact of the changes and providing some planning options for Island residents and domiciliaries with UK connections. He looked further into the proposal to treat long-term residents of the UK as UK domiciled for all taxes. He also explained that ownership of UK residential property via an offshore company will soon no longer provide the IHT shelter that it had previously.

Glenn and Phillip continued proceedings with ‘UK Property – The Good, The Bad and The New’; a double act presentation which evaluated the taxes that need to be considered by an Isle of Man owner of UK residential property. 

Phillip explained: ‘What we have been used to for 20 years has changed significantly over the past couple of years’.

As Phillip provided an evaluation of the traditional tax considerations, Glenn provided regular interruptions to expand and clarify how taxes have changed since 2012. They talked about changes to Capital Gains Tax and Inheritance Tax and explained the Annual Tax on Enveloped Dwellings (ATED) – a tax on ‘expensive’ UK residential property owned by companies - which became effective in 2013. Particular emphasis was placed on the ATED minimum threshold, which has already decreased from properties held in companies worth more than £2 million to properties worth more than £1 million and will next month be further reduced to apply to all properties held in companies which are worth more than £500,000. 

‘The initial ATED charges didn’t encourage enough individuals to take their properties out of offshore companies, hence HMRC continues to lower the threshold and significantly increase the annual charges for companies caught within the scope.’ Glenn explained. ‘Currently, some individuals are paying ATED charges of up to £218,200 for the privilege of holding UK residential property via an offshore company and availing of the Inheritance Tax Protection provided.  Unfortunately, this protection may no longer be available from April 2017 and some future planning may be required.’

This section of the seminar concluded with Glenn’s summary of the current tax considerations for Isle of Man owners of residential and commercial UK property, which led seamlessly into Kevin’s presentation which proposed future planning opportunities for these individuals. 

Kevin commented:

‘There are shafts of sunlight among the storm clouds and there are still benefits to be had from offshore company ownership of residential property, including privacy, reduced tax rates on rental income, unchanged relief for interest payments and opportunities to come outside of CGT and Stamp Duty Land Tax (SDLT).’

The continuing advantages of company ownership for commercial and mixed use property were summarised for delegates by Kevin, who explained:

‘It is very much business as usual when it comes to ownership of commercial property via an offshore company. It remains outside of the scope of CGT, IHT, and ATED. It also continues to be possible to limit SDLT to 4% and income tax to 20% or less in some certain circumstances.’

He finished by providing alternative strategies including ‘lend to buy’ and life cover, which may play a key part in future succession planning strategies.

The seminar came to a close with a brief overview of the recent Isle of Man Budget presented by Phillip.

‘With this budget being so close to the election, the Government was not in a position to give away significant benefits to taxpayers,’ he began. ‘Likewise, the Treasury Minister was unlikely to introduce cuts in services or increases in tax. Nevertheless, there were some interesting developments.’

Phillip acknowledged the Isle of Man Government’s ‘tremendous achievement’ of getting the Revenue Account back into balance, but tempered this with noting the significant costs not included in the current-year revenue account that need to be funded out of income.

The overview considered the new relief for the development of properties - ‘a five-year tax holiday for profits in respect of property development or rental, where that property development is in the interests of the economy of the Island’ - and touched on the focus on tax avoidance in terms of the tightening up of the use of 0% taxable companies to hold assets and the attention to supplying information for FATCA and the Common Reporting Standard.

Phillip made mention of the flexibility that is to be allowed to certain pension funds and finished his presentation by noting that he was surprised that the Isle of Man has not followed the UK in terms of National Insurance by levying a 1% charge on employment income for employees over 65 and a 1% increase for both employee and employer NI.

The seminar concluded with opportunities for delegates to question the speakers.

Reflecting on the seminar, Helen said:

‘Following last year’s UK summer budget, there is still a great deal of uncertainty regarding the tax impacts affecting Island residents with UK assets and non-domiciliaries who are UK resident. As we await the release of further information, we can only speculate on some areas. This seminar was intended to inform individuals and their advisers on what the changes could actually mean to them and how they can start planning now.’

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