Ten Questions and Answers for Members of the British Residents Association in Switzerland Friday 7 November 2014 at Café Spitz, Hotel Merian Basle, Basle d k l m City House 3 Cranwood Street London EC1V 9PE TEL: +44 (0)207 549 7888 FAX : +44 (0)207 549 7889 www.dklm.co.uk
INDEX 1 6 Ten Questions and Answers for Members of the British Residents 7 David Semmens Profile 8-9 DKLM LLP: An Overview of the Firm
Friday 7 November 2014 Ten Questions and Answers for Members of the British Residents Association in Switzerland 1. Will I pay UK Capital Gains Tax when I sell my London house? The UK Government proposes that from next April you will. There has already been a Consultation paper. The Consultation is now closed. It is likely that Capital Gains Tax will only apply on Gains accruing from next April. Enforceability of the Tax has yet to be defined or agreed. There have been suggestions for some form of withholding Tax either by a Purchaser or Seller s Solicitors. The rate of Tax has yet to be decided. Also, it is not clear how the Election Rule will apply. It is likely that this will be abolished for non-uk Residents. It is not yet known if the annual exemption from Capital Gains Tax will still apply to non-uk Residents. 2. Will my London house owned by a Company attract the Annual Property Tax (ATED)? Yes it will if it was worth more than 2,000,000 on the 1 April 2012 or later and it is owned by a Corporation (non-natural person). 1
Current annual tax rates for 2014/2015 are 15,400 for Properties worth between 2,000,000 and 5,000,000, 35,900 for those worth between 5,000,000 and 10,000,000 right up to 143,750 if the Property is worth than 20,000,000! Furthermore, Stamp Duty Land Tax has recently been increased to a rate of 15% on the purchase of any UK Property worth 500,000 or more, subject to the relief mentioned below. From April next year it is proposed that the ATED will apply at an annual Tax of 7,000 for Properties worth between 1,000,000 and 2,000,000. From April 2016, it is proposed to extend the Tax at an annual rate of 3,500 to Properties worth between 500,000 and 1,000,000. Various reliefs from the Tax and the 15% Stamp Duty Land Tax are available, including the Tax not applying if the Property is let permanently, is owned by a Property Trading Company or owned directly by a Trust Company. There are other complicated reliefs available. Where a UK Property is subject to ATED then it is also caught by Capital Gains Tax on sale at the rate of 28% on the Gain from April 2013. 3. What about my annual personal allowance from Income Tax on my UK income. Is this under threat? The UK Government through HMRC is currently undergoing a Consultation with a view to abolishing the annual Income Tax Personal Allowance if you are not a Resident in the UK. This may take effect from April 2015. However, it is proposed that you will still keep your allowance provided that you maintain strong economic ties with the UK. This probably means that 2
between 50% and 75% of your income must come from the UK. However, no precise details are yet available. 4. I have lived in Switzerland for many years. Am I still domiciled in the UK? No, provided you have lost your domicile of origin and made Switzerland your domicile of choice. Under UK law, when you were born, you started with your domicile of origin. Usually you would take the domicile of your father. You can change your domicile of origin to a domicile of choice by moving to a new country, living there and intending to stay there permanently for an unlimited time. So to lose your UK domicile you should sever as many links as possible with the UK. Closing your UK bank accounts, selling UK investments, resigning from UK clubs etc will all help. Similarly putting down as many roots in Switzerland will help to lose UK domicile. All UK law regarding domicile is defined by the UK Courts not Parliament and particularly not HMRC (Inland Revenue)! 5. Does it matter where I am domiciled? It matters if you want to avoid paying UK Inheritance Tax at 40% above either your single 325,000 nil rate band (subject to your marriage status on death) or your double 650,000 nil rate band if you are entitled to your previously deceased spouse s nil rate band. 3
If you are domiciled in the UK (England, Scotland, Wales and Northern Ireland) then, when you die, all your worldwide assets that pass to anyone, other than your surviving wife or husband, will attract Inheritance Tax at 40% above your nil rate band. UK Inheritance Tax is one of the most expensive death taxes in the World. Many Swiss cantons have no Inheritance Tax and those that do have considerably lower rates than in the UK. 6. Surely everything that passes to my surviving wife or husband will be free from UK Inheritance Tax? No. If you are UK domiciled but your surviving wife/husband is not, then only the first 325,000 over the nil rate band will be free of Inheritance Tax. Everything above will attract Inheritance Tax at 40%. However, your non-uk domiciled surviving husband or wife can make an election to be treated as UK domiciled. The election can be made either as a lifetime one or within 2 years of your death. However, if you are non-uk domiciled at your death then everything that passes to your surviving spouse will be free of Inheritance Tax whether he/she is domiciled in the UK or not! 7. If I have lost my UK domicile and I decide one day to return to the UK will I immediately regain my UK domicile? If you return to the UK with the intention of remaining their permanently then you will regain your UK domicile of origin. HMRC will welcome you back with open arms into the UK Inheritance Tax net! 4
8. Where should I make a Will; in the UK or Switzerland? If you have no UK assets to speak of then there is no need for you to make a UK Will. Even if you have UK assets, then provided you have not become a Swiss National, you can make a Swiss Will in which you apply UK Law. If nothing else, making a Swiss Will may help you lose your UK domicile. If you make no Will at all your Estate will pass to various beneficiaries according to which countries Intestacy Law applies. If you are not UK domiciled then only UK land and Property will be subject to UK Intestacy Law. The rest will be caught by Swiss rules. If you become a Swiss National then all your Swiss Estate and your non-uk Property Estate will be subject to Swiss Forced Heirship Law regardless of what you say in any Will. 9. What about my UK house and other assets? Will they attract UK Inheritance Tax? If you are domiciled in the UK then when you die and your assets do not pass to your surviving spouse, your UK assets will be added to your worldwide Estate the total value of which will be taxed at 40% above your nil rate band. If you are not UK domiciled but your UK assets are worth more than your nil rate band, the excess, less any UK debts, will be taxed at 40% if they do not pass to your spouse. Owning UK assets, even if only small, will certainly generate more paperwork on your death. Even a small UK Shareholding will generally require a Grant of Probate. 5
Obtaining a UK Grant of Probate and the resulting legal formalities can be expensive and time consuming. Worse, a full Inheritance Tax account will often be required for production to HMRC. If you must have a UK Bank Account and are married then it is probably best for it to be in the joint names of you and your spouse. If not, then a Grant of Probate may be needed and again a full Inheritance Tax Account. 10. Can I have some tips please for saving Inheritance Tax? If you have UK domicile then lose it. Avoid owning UK assets. If you must own UK assets at least own them jointly with your spouse. Use your annual Inheritance Tax gift allowances. Own business property or agricultural property. Look at various Inheritance Tax saving products. Make yourself poorer. Spend, spend, spend! and lastly, if you are single get married! 6
DAVID SEMMENS PARTNER With a history degree from London University, David qualified as a solicitor in 1979. A few years later he formed his own firm, based in Covent Garden and Kingston. He joined DKLM as a Partner from a well-known Mayfair firm where he was head of the Private Client department. David has a wealth of experience in most private client matters. He drafts complex wills and trusts, advises on UK and international succession and tax planning and administers the UK estates of overseas domiciled persons. His clients include entrepreneurs and business persons, entertainers and sports persons, other lawyers and professionals and retirees. He acts for UK ex-patriates living in Europe (mainly in Switzerland) and the USA. He has written on private client issues for the broadsheets, including The Times and The Daily Telegraph. He has also spoken at seminars on a range of matters. David's interests include all things musical, from jazz to Beethoven, as well as supporting Cornish Pirates RFC. He has also had to endure being a life-long supporter of Plymouth Argyle. Contact details: Telephone: 0207 549 7896 Fax: 0207 549 7889 Email: d.semmens@dklm.co.uk 7
DKLM LLP THE FIRM DKLM is an established commercial London law firm with an international focus. Our expert teams offer a complete range of legal services to our clients, whether private or commercial. DKLM was formed in 2004 by its four founding partners: Alan Dixon, Jeremy Kleinfeld, Philip Li and Kiran Morzeria, and the name DKLM is formed from their initials. Each founding partner comes from a very different community and has a very different background. From its inception the foundation stone of DKLM has been the diversity of its clients, partners and staff. The Firm has doubled in size in the last five years and as we celebrate our 10th successful year we are expanding faster than ever. In the last decade we have been careful to listen to the needs of our clients, and as they have expanded and grown, we have also expanded our areas of practice and sought out new opportunities for the firm, and our clients, internationally. We have a strong expertise in our core areas of legal expertise: business immigration, commercial property, corporate and commercial, commercial litigation, employment, private client and estate planning, property litigation and residential conveyancing. We also provide specialist services for mediation/adr, licencing and tech law. We also offer a serviced office/company secretarial service for our international clients. In 2012 DKLM received a massive boost to our existing international network of relationships from signing a Strategic Association with Zhonglun W&D Law Firm one of mainland China s largest, and highly regarded law firms. The alliance provides our clients and professional contacts with access to over 400 lawyers in 11 associated offices across China and associated offices in Hong Kong, Riyadh, Lyon, Paris, Berlin and Hamburg. 8
The diversity of DKLM has opened up boundaries for the firm. Along with the benefits of the legal expertise we offer many of our staff are also fluent in Mandarin; Cantonese; Malay; French; Spanish; Gujarati; Urdu; Hindi or Punjabi. d k l m City House 3 Cranwood Street London EC1V 9PE TEL: +44 (0)207 549 7888 FAX : +44 (0)207 549 7889 www.dklm.co.uk 9