The Russian Private Equity Advisor

Our recent work for a Russian client provides some good examples of planning which can be considered for a UK resident but non-UK domiciled individual.

Our client works for a US headquartered Private Equity business but is based in the UK. He sought our advice as he was looking to acquire a larger home to accommodate a new addition to his young family.

The immediate question was how he could make effective use of his offshore assets to help to fund the purchase. In particular, it was important to mitigate the tax charge on funds remitted to the UK, and to reduce the value of the property exposed to inheritance tax going forward. Various options and ownership structures were discussed, allowing the client to implement a flexible and tax-efficient solution.

Most non-UK domiciles know that income and gains arising from offshore funds will not be taxed here until the individual has lived in the UK for some time and even then can be avoided by payment of the non-dom tax charge. That is, unless those funds are remitted here and that does not necessarily mean they have to be physically brought to the UK. Deemed remittance of funds can occur in all manner of unexpected ways and can provide a nasty shock for the unwary.

The next stage of our work for our Russian client was therefore a “tidying up” of his offshore accounts to allow for future tax-free remittances to the UK and to avoid the potential horrors of the post-April 2008 “mixed fund” and “nominated income” regimes.

In the longer term, our client will need to have regard to potential inheritance tax exposure as a “deemed domicile” and discussions have started regarding use of an offshore trust to shelter his assets, in particular his carried interest (the growth in value of the companies his Private Equity firm invests in), from potentially a 40% death duty.