Mr C, a French national, had been seconded by his French employer, to the UK, in 1999. Whilst in the UK, Mr C had accumulated significant funds in an offshore account. He intends to return to France within the next 5 years. With the introduction of the new “non domicile” tax in April 2008, Mr C went to see his IFA to discuss his options. He had heard that a French Assurance Vie offshore bond may suit his circumstances.

His IFA explained the rules and options as follows:

•  Domicile is a legal concept meaning “where a person has their permanent home to which they intend to return”. This concept is important as following a change to how non-domiciled individuals are taxed in the UK after 6 April 2008 there are additional reasons to consider an offshore bond.
•  Before 6 April 2008, individuals who were resident in the UK but non-domiciled were only liable to tax on their UK sourced income – foreign income was only liable when it was remitted to the UK.
•  However from 6 April 2008 individuals who are non-domiciled but who have been resident in the UK for the year of claim and at least seven of the previous nine have a choice. They can either have their worldwide income subject to UK tax or pay a £30,000 charge if they wish to continue to be taxed on the remittance basis.
•  The charge will not apply where the unremitted foreign income is £2,000 or less. However, individuals who claim the remittance basis will lose their personal allowance and their capital gains tax annual exemption.

Should Mr C consider a French Assurance Vie offshore bond?

As a French national residing in the UK, Mr C has the choice of either a French (Assurance Vie) or UK offshore product.
Whichever route is chosen, whilst UK resident Mr C may still make 5% per annum withdrawals with a deferred income tax charge.

An offshore bond provides an opportunity for Mr C to have tax years with no worldwide “income”, therefore no need for a remittance election and avoiding the £30,000 annual charge. In addition, as it is the client’s intention to leave the UK in the future, by adopting this strategy it is possible that no UK tax liability will arise.

A French Assurance Vie product should be considered as Mr C is a French national and if this type of contract is used, whilst resident outside of France, the proceeds on death in France will not be subject to French Inheritance Tax.