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Using Time Appointment Relief for UK Tax Planning
If you plan to return to the UK at some point in the future and
have built up your offshore savings and investments to purchase
a home on your return or fund your retirement, be prepared for a
big tax bill when you need this money.
Time apportionment relief (TAR) is a relief from UK tax which is
only available to holders of offshore bonds. By establishing an
offshore bond now and transferring your assets into this (either
now or shortly before you return home) you can substantially
reduce the tax liability. The further in advance you establish
the bond, the greater the tax saving.
How does TAR ‘work’?
A chargeable event gain on an offshore bond is reduced if the
policyholder was not UK resident throughout the life of the
policy.
The chargeable gain is reduced by the fraction A/B where, A is
the number of days for which the policyholder was non-UK
resident during the life of the policy, and B is the total
number of days for which the policy was in existence.
Example 1
Ruth took out an offshore bond on 22 March 2000. At that time
she was working on secondment in Dubai and regarded as resident
there for tax purposes.
Ruth returned to the UK on 25 April 2004 and was regarded as UK
resident from that date.
She fully surrendered the policy on 10 October 2008 and the
chargeable event gain was £21,500.
The bond was in existence for a total of 3,125 days. (This
includes the day on which the bond was established and the day
on which it was fully surrendered.) Ruth was not UK tax resident
for 1495 days in this period.
The taxable gain is thus reduced to: £21,500 x 1,495/3,125 =
£10,286
This is the figure which should be entered into her
self-assessment return for the year ended 5 April 2009.
Are there any restrictions on the availability of TAR?
Time apportionment relief is not available in respect of
policies held by non-UK resident trustees or “foreign
institutions”.
What are the relevant rules on trustee residence?
A trust is non-UK resident for this purpose where all the
trustees are non-UK resident.
Where there is a mixture of resident and non-resident trustees,
as a body the trustees are regarded as resident unless the
settlor was:
Account is also taken of when the settlement was set up and the
dates at which any later funds were added.
What is a “foreign institution”?
A foreign institution is a company or other body (e.g.
Anstalt, Stiftung, foundation) resident or domiciled
outside the UK.
Are there planning opportunities?
Consider the possibility of making ‘top-up’ investments shortly
before returning to the UK. The entire bond, including the
‘top-up’ element qualifies for TAR. If a new bond was started
with the funds available for ‘top-up’, the non-resident period
used in the calculation would obviously be shorter.
For Example:
Andrew, a UK expatriate resident in Qatar, invested £200,000 in
an offshore bond on 1 September 2005. He knew that he would be
returning to the UK on 1 September 2009. He intended to
surrender the bond in 2010 to buy a retirement home in Scotland
and in August 2007 he acquired a further £100,000 for investment
in the bond.
Lets Assume:
1. A new bond invested on 1 September 2007; surrendered on 1
September 2010;
2. An estimated surrender value (new bond) £118,000;
3. An existing bond surrendered on 1 September 2010;
4. An estimated surrender value (old bond) £255,000.
Scenario 1: Taxable amount if “new bond” acquired:
Old bond chargeable event gain
£55,000
TAR(1460/1825 x £55,000)
£44,000
Taxable amount
£11,000
New bond chargeable event gain £18,000
TAR (730/1095 x 18000) £12,000
Taxable amount
£6,000
Total amount subject to tax
£17,000
Scenario 2: Taxable amount if old bond “topped-up”:
Chargeable event gain (£55,000 + £18,000) £73,000
TAR (1460/1825 x 73000) £58,400
Total amount subject to tax
£14,600
How can Candour Consultancy help?
Candour Consultancy advises on a wide range of income, capital
gains and inheritance tax planning products from some the
worlds leading financial institutions. Should you
wish to speak to one of our fully qualified financial advisors
with regards to using an offshore bond to legitimately mitigate tax,
just
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