What the government should do post Brexit

This morning, I gave a talk on Making Britain Great – post Brexit for the Wealth Forum at the Caledonian Club in London. The Consultation Paper on the taxation of non doms published on the 19th August 2016 by the Government, as I have described in my previous two notes, sends out the same harsh message as we have seen before – it has no sympathy for anyone who tries to avoid tax.

It is, however, not fair to treat UK resident taxpaying non doms in the same way as non UK residents. The Government should be seen as tough on those seeking to avoid tax who are not contributing to the economy, but not on those for whom the UK is their home and at a time when they do not have the cash to pay the tax.

The gain should be taxed only as and when the gain is realised on a sale or gift, but not on the de-enveloping of the property – transferring it out of an offshore company. If on a subsequent sale or gift the home is the taxpayers’ main or only residence, and has been throughout ownership (whether directly or indirectly) the taxpayer should be entitled 100% relief from capital gains tax. For non UK residents for whom a home in the UK is a luxury to which they make the occasional visit the main and only residence relief for capital gains tax will not be available. Even so capital gains tax should not be payable on a de-envelope.

Similarly, if the home is owned directly at the time of death there should be an uplift in capital gains whether the owner is UK resident or not. This is fair and consistent with introducing inheritance tax on all UK homes. 

Encouraging non doms to de-envelope in the above manner is also in line with the Government’s stance on transparency and enables it to track transfers of residential properties through the land registry. It should not make advisors/directors of companies obligated to report and liable for the tax to track information.

Furthermore, if the UK resident taxpayer wants to sell he should not be penalised by crippling Stamp Duty Land Tax (SDLT) at 12 – 15%. The Government should lower this rate for UK residents to 4%. Since the hike the tax take for SDLT has fallen by one third, this cannot be right for either the Government or the taxpayer. If by doing so a two tier market is created – so be it – why should we not favour our own residents?

With regard to the Government’s proposal to make the UK more attractive to non doms through the Business Investment Relief. Our view is that this relief is complicated, ill targeted and should be scrapped in favour of a more radical, but much more consistent message from the Government.

It has long been a mystery to us, why the Government which is a pioneer on transparency, and tax anti avoidance should wish to preserve a system of taxation which promotes offshore financial centres in preference to its own. What we propose is for the Government to extend the tax benefits for non UK doms given to offshore trusts to trusts with UK resident trustees and UK situs assets. This would give the Government full transparency, save the Government considerable expense in administering the automatic exchange of information for all its non UK doms  and protect its UK resident non doms from the vagaries of the CRS. It would also send the right message to the world that the UK is committed to transparency, supports its own financial centre and welcomes wealthy foreigners who wish to make the UK their home.

The Government should also encourage beneficiaries to spend. Trusts should not lose their tax advantages when a benefit is paid to a beneficiary. It makes no sense!

An extension of the tax reliefs to onshore trusts and UK situs assets, would also lend support to the private client industry with a welcome injection of new business. The trust business in the UK, founder of the trust, has, with increasing hikes in taxation, seen the trust business dwindle to back room administration of Will Trusts for widows, orphans and the disabled. These changes would be a welcome boost to our private client industry and with increased profits would increase revenue for HMRC.

We will be submitting our responses to the Consultation Paper before the deadline of 20th October but would welcome any comments you may have - for or against - before then.

In the meantime, if you would like to arrange to see Caroline or one of her team for any concern you may have as an UHNW individual or family, please contact Svetlana on 020 3740 7423 or on svetlana@garnhamfos.com