About Mohammed
Mohammed is 40 and from Dubai. He relocated to London a few years ago with work, although his parents still live in Dubai and he intends on returning there. He currently lives with his girlfriend in London and they’re planning to get married in the next five years, although they haven’t decided yet in which country to set up home. Mohammed has £1m in a Dubai bank account, which he keeps as an emergency fund.
Mohammed’s goals
Mohammed knows that if he becomes a UK resident for 15 of the previous 20 tax years, he will be deemed UK domiciled. This means that his worldwide assets will be in scope for inheritance tax. He wants to avoid this as much as possible.
Choosing our Excluded Property Trust
Mohammed’s adviser suggests that while he’s still non-UK domiciled, he invests his £1 million into an international investment bond and places this in an Excluded Property Trust. This should be done before he becomes deemed UK domiciled
With our Excluded Property Trust, there’ll be no UK inheritance tax to pay on the underlying investments. Mohammed and his beneficiaries can receive money from the trust at any time.
Tax-efficient withdrawals
The investment bond allows the trustees flexibility on distributing money to a beneficiary. They can arrange regular, tax-efficient withdrawals from the bond.
When you become UK domiciled
In the future, if Mohammed becomes deemed UK domiciled, he’ll need to pay UK inheritance tax on his worldwide assets. However the bond in the Excluded Property Trust won’t be in scope for UK inheritance tax.
If the trustees decide to use the proceeds of the trust within the UK, to buy Mohammed a property for example, then the trust could lose its excluded property status. Also, Mohammed won’t be able to add any assets to the trust once he’s UK domicile or deemed UK domicile.
Inheritance tax advantages
Now that Mohammed has gifted assets to an Excluded Property Trust, they’ll be sheltered from UK inheritance tax when he dies. Income and capital can also be distributed from the trust fund, without affecting the trust’s tax status.
Inheritance tax bill saving
By moving his non-UK investments to the Excluded Property Trust, Mohammed enjoys a potential inheritance tax saving of up to £400,000.
What are the risks?
The value of your investment can go down as well as up and you may get back less than you invest. The way investments performed in the past is not a guide to how they’ll perform in the future.
Tax rules depend on individual circumstances and may change. Speak to an adviser, if you need more information on tax.
