UK property and CGT tax update

Posted on 12th March 2015 by Trevor in Uncategorized

If you own property in the UK you need to be aware that the government has announced that Capital Gains Tax (CGT) will now be payable on UK property sold by overseas residents and offshore companies.

If you own any investment property in the UK or a principal UK residence which you may sell while living abroad, this development will affect you.

The legislation requires the payment of CGT on any gain from 6th April 2015 until the date of disposal of the property. The current CGT rate in the UK is 28% for higher rate payers. However, the CGT is due only on gains in value accrued from 6th April 2015.

In order to protect you against paying tax on gains achieved prior to the introduction of the tax, it is recommended that you to obtain a valuation on the property before 6th April 2015.

Whoever values the property will need to provide a RICS Red Book Valuation Certificate that is accepted by HMRC.

Case Study: UK expat with UK assets and non UK spouse – what happens with IHT?

Posted on 11th March 2015 by Trevor in Uncategorized

For expats who still regard Britain as their ultimate home, their worldwide assets remain within the scope of UK inheritance tax even if they are not UK tax resident. UK inheritance tax liability is based on domicile which is different to tax residence. Domicile is a much broader concept of where someone regards as their home. At birth an individual acquires their father’s domicile as their domicile of origin, unless their parents are unmarried in which case they would take their mother’s domicile as their domicile of origin. For those with a domicile of origin in the UK, HMRC argues that it is very difficult to lose your domicile of origin and acquire a domicile of choice elsewhere, and this position is supported by case law.


Example 1

Mr English has a domicile of origin in England. He left the UK in February 2000 to work in Dubai, where he met and married his wife who is from New Zealand.

Mr English does not intend to stay permanently in the UAE and intends to retire somewhere else in the world, possibly New Zealand, and does not intend to return to the UK.

Even although Mr English has been non-UK resident for 12 UK tax years, and does not intend returning to the UK, as he does not intend to live permanently in UAE but will retire somewhere else, he will not have acquired a domicile of choice in UAE. Mr English still has his domicile of origin in England. Consequently, Mr English’s worldwide assets remain liable to UK inheritance tax.


Increased limit on spouse exemption

Until now the position has been exacerbated for expats who marry (or enter into a civil partnership with) a partner with a domicile outside the UK. Where both spouses are UK domiciled then unlimited spouse exemption applies on lifetime gifts between spouses or where everything is left to the surviving spouse on death. However, where one spouse is UK domiciled and the other is not, spouse exemption was limited to just £55,000 where the UK domiciled spouse died first. This could result in inheritance tax on the first death where the non-UK domiciled spouse inherited assets exceeding £380,000 (being the combined nil rate threshold of £325,000 and the limited spouse exemption). Inheritance tax would be payable at 40% on the excess. Where the non-UK domiciled spouse inherited and held UK situated assets a ‘double whammy’ could result as those assets could then be liable to further UK inheritance tax on their death.

From 6th April 2013, the limit on spouse exemption has increased to £325,000 on assets passing from a UK domiciliary to their non-UK domiciled spouse. This is in addition to their available inheritance tax nil rate threshold, which remains £325,000. A total of £650,000 of assets can now pass tax free to the surviving non-UK domiciled spouse.


Electing to be UK domiciled

While the increased spouse exemption limit is helpful, it may not be enough to eliminate the inheritance tax liability for all couples who find themselves in this situation.
In a further change to the rules, where a non-UK domiciliary receives or inherits assets from their UK domiciled spouse, they can now elect to be UK domiciled for inheritance tax purposes. The most likely scenario in which this election would be exercised is when their UK domiciled spouse died and the value of the assets they inherit exceeds the combined nil rate threshold and the limited spouse exemption so that there would otherwise be a UK inheritance tax bill. In these situations, the surviving spouse has two years following the death of their spouse to elect to be UK domiciled. The election applies for inheritance tax purposes only, and does not affect their tax residence, or require them to reside in the UK or to be able to reside in the UK.

The election enables unlimited spouse exemption to apply and would thereby eliminate the UK inheritance tax liability on the first death where everything is passing to the surviving spouse. However, the surviving spouse’s worldwide assets would then be subject to inheritance tax on their death. Previously, as a non-UK domiciliary, it would only be their UK situated assets which would have been liable to UK inheritance tax. Consequently, making the election could result in a larger overall inheritance tax bill in the future on the couple’s combined assets. Electing to be UK domiciled will depend on the value of the couple’s assets, where they are situated and how they are held.


The election to be UK domiciled is permanent but would lapse if the surviving spouse is non-UK resident for four complete tax years in the future following the election.

Example 2

Mr English’s assets are valued at £800,000. Mrs English has £300,000 of assets outside the UK. Mr English dies and leaves his assets to his wife. Mr English did not make any gifts in the previous seven years and his inheritance tax nil rate threshold is available in full.

Mrs English inherits £650,000 of assets free of inheritance tax (Mr English’s nil rate threshold plus the limited spouse exemption). There would be an inheritance tax charge at 40% on the balance of £150,000. The total inheritance tax bill on Mr English’s death is £60,000. If Mrs English later transferred all assets from the UK there would be no UK inheritance tax on her death. The total UK inheritance tax on their combined assets would be £60,000.


If Mrs English elected to be UK domiciled there would be no inheritance tax to pay on Mr English’s death. Following the election to be UK domiciled, Mrs English’s worldwide assets together with the assets she inherited would total £1,100,000 and all would be within the scope of UK inheritance tax. On Mrs English’s death her nil rate threshold of £325,000, together with her spouse’s nil rate threshold of £325,000 could be transferred and set against her assets, with inheritance tax at 40% payable on the balance. The inheritance tax bill would be £180,000.


Here the inheritance tax bill is higher if Mrs English elects to be UK domiciled. A lower overall inheritance tax bill results if Mrs English does not exercise the election and pays the inheritance tax on the first death. If Mrs English elected to be UK domiciled but then remained non-UK resident, four UK tax years following her husband’s death any future UK inheritance tax liability would lapse.


Expats still have to think about their UK inheritance tax exposure even if they have not been UK resident for many years. For expats married to a non-UK domiciliary, the limited spouse exemption could often result in inheritance tax on the first death. The new rules help eliminate potential inheritance tax liabilities on the first death, and, for some couples, will mitigate inheritance tax on the second death as well.


While electing to be UK domiciled under the new rules this will eliminate any inheritance tax liability on the first death, but it is important to think ahead to tax liabilities on the second death. Where the non-UK domiciled spouse will remain non-UK resident exercising the election may be a good solution, and it should be possible to insure the potential tax exposure on the second death until this lapsed four tax years later. Where expats return to the UK with a non-UK domiciled spouse then relying on the election could reduce the amount the couple could pass down to their children in the longer term, and lifetime planning would be more important.

Case Study: UK expat with UK assets – what happens with IHT?

Posted on 11th March 2015 by Trevor in Uncategorized

  • Jimmy is a 54 year old UK national, living anywhere in the world and single.
  • He owns a home in the UK worth £500,000.  He has no other UK assets.
  • He has a daughter (Jessica, 26) who he’d like to inherit the house.
  • If he dies, there’s going to be IHT to pay on his estate

(£500,000 – £325,000 x 40% = £70,000)

  • He is unlikely to have enough liquid assets to cover this, as he is funding a QROP and doesn’t want his daughter to have to sell the house to pay it either.
  • Jimmy takes out an Asset Protection Plan for £200,000
  • He appoints himself and Jessica as Trustees and Jessica is the only beneficiary.
  • 3 years later, Jimmy dies.
  • His worldwide assets at death were valued at £600,000
  • IHT liability at death = £110,000 (£600,000  – £325k x 40%)


  •  Asset Protection Plan pays £200,000 to Jessica as surviving Trustee.
  • Jessica settles her father’s estate costs
  • Probate is obtained for the house
  • House is transferred to Jessica and she also retains the balance of the Asset Protection Plan to do with as she sees fit.

Case Study: Non UK dom with UK assets – UK IHT what happens?

Posted on 11th March 2015 by Trevor in Uncategorized

  • Hiro is a 52 year old Japanese national (living in anywhere in the world)
  • He owns a property in London worth approximately £2 million.
  • It was originally an investment property, but he likes to be able to use it as and when he likes and as such doesn’t rent it out anymore.
  • Prior to the introduction of ATED it was held in a corporate vehicle, but this is no longer financially viable due to the annual charges
  • Even though Hiro isn’t British or live in the UK, he’s still got a UK IHT liability from his UK asset as its registered in his name £2,000,000 – £325,000 = £1,675,000 x 40% = £670,000 IHT bill!
  • What is ATED? = Annual Tax on Enveloped Dwellings
    • Currently applies to residential property Values of £2m or more but;
    • From 1st April 2015, this will extend to UK Residential Properties over £1m in value
    • From 1st April 2016, this will extend further to those over £500,000 in value.


ATED Charges

From April 2016 Charge
£500,000 – £1million £3,500
From April 2015 Charge
£1million – £2million £7,000
£2milion – £5million £15,400
£5million – £10million £35,900
£10million – £20million £71,850
£20million + £143,750


  • Plus CGT at 28% on sale
  • Hiro is concerned that should he die whilst still owning the UK property that his estate won’t be able to fund the IHT liability
  • He takes out an  Asset Protection Plan to insure against his UK IHT Liability with £700k initial cover + 5% Premium indexation to cover increases
  • in property values .
  • He pays an initial monthly premium of £1000
  • Hiro and his two sisters are the Trustees, the trust is discretionary and Hiro and his two sisters can benefit.
  • Should Hiro die, his sisters can settle his UK estate costs but the plan can also be cashed in if no longer required.



  • Hiro funds the policy for 15 years from his disposable income.
  • He then sells the UK property and cashes in the plan.
  • After 15 years the cash in value of the plan could be as much as  £267,000* which is more than the sum of the premiums paid. * based on 7% Growth


Sign posts for 2015

Posted on 16th December 2014 by Trevor in Blog |Finance in Focus

The US$ is beginning a long term bull run. Why? Several reasons first the US economy is the only country performing and trying to hold up the world economy. Second, fear in Europe and possibly Japan on higher taxes and possible confiscation of wealth. Third, there has been about US$ 3 trillion borrowed around the world and as the USA stopped QE there are now less US$ being put out there and therefore all the borrows are in effect short US$. This is massive. This is what leads to currency crisis, but NOT in US$  but in emerging market currencies as they borrowed US$.  The capital flows are showing massive movement to US$ and this is also propping up the US equity markets – we suspect a pullback in the US markets – that will provide a buying opportunity and the US markets will go higher into 2015.

Commodities will struggle with the strong US$ but as the Sovereign debt crisis grows there will be a point when commodities rise with the US$ we suspect this to begin in 2016 with the full resumption of the sovereign debt crisis.

Gold: It has been a difficult 3 years for gold as it has dropped further than we had thought it would. Does this bother us? No not really, as we still believe the sovereign debt crisis is just beginning. People will start to notice when the US economy starts to turn down in 2015. This will be the kick off for precious metals – we have said to patiently accumulate – many of you have and it will pay off into 2016~20.  But before that we may see gold actually fall to $1,000 or perhaps a bit under, the tree needs to be shaken and the talking heads on TV need to say gold is dead, we are not far now.  That time will come as the Sovereign Debt Crisis hits the USA and that seems likely around the autumn of 2015 when the US economy starts to turn down. We stand by what we said 3 years ago accumulate gold on a regular basis, the longer term strategy will work gold will rise into 2016~2020.

Bonds, especially government bonds, are DEAD, avoid completely, as they have finished their bull run from way back in 1980!

Europe – avoid as there will be structural changes which can’t be predicted- many now seem to think buying or holding money in Germany will protect them if there is a breakup of the EU assuming they will get Deutschmarks. Too much risk go to US$.

The UK economy is tracking the US far closer than the EU. However the GBP is weak and we expect this to range trade 1.50 -1.70 depending on electoral outcomes.

Asia – China is it an enormous mess? No one really knows the extent and Chinese growth is slowing perhaps more than most people think.

The Yen and the Nikkei: The Yen has almost reached 122 now it is 117.80. The Nikkei came to life in December 2012 and again in October 2014 as the BOJ implemented aggressive monetary stimulus. The initial strength into May 2013 was a ‘true’ increase when measured in any currency.  However, since then any increase has been a reflection of the weakness in the Yen. The Yen is at an important juncture, we see the 50 week moving average is coming into play — perhaps a test of 115?  Before we have a much larger leg down for the Yen, perhaps 140?  Abe walked away with the election as the voters really do not understand what is happening (Abenomics better work, or the Japanese Pensions are toast).  The Bank of Japan now owns bonds worth 60% of the value of the Japans’ GDP and is buying 17% more each year in just over two years they will own more than the annual GDP of Japan — that can’t be good.

Currently there is exhaustion in the Nikkei — all weak Yen driven — a monthly close of under 16,300 would imply more downside in 2015.

So in 2015 continue to accumulate Gold, Commodities and the US Equity markets. Please get it touch if we can assist with your investments.

The search for true alternatives and income

Posted on 11th November 2014 by Trevor in Blog


By Oliver Harris

Friday 7th November 2014

The global financial crisis created a paradigm shift in the perception of risk. The unprecedented collapse of most traditional asset classes prompted investors to look further afield for truly alternative forms of investment, immune from the short term impact of market movements. Additionally, the subsequent low interest rate environment of today has resulted in a major quest for income – driving the prices of many yielding assets well above fair value.

As institutions seek to address these issues, their nets have been cast far and wide. The care home sector, a relatively unknown but growing space, remains the preserve of a few but is being increasingly recognised for its low correlation to other assets, low volatility characteristics, as well as high and sustainable levels of income.

Benefitting from demographics

The care home sector’s emergence as an alternative form of investment is underpinned by attractive and undisputable demographic trends, such as longevity and an ageing population. The provision of residential care is not subject to market forces and the payers for such services are not directly affected by short-term sentiment.

The macro demographics are irrefutable. The number of people in the UK aged 85 and over was 1.6 million in 2013, and this is set to double over the next 20 years. From 2012 to 2032, the populations of 65 to 84 year olds and the over 85s are set to increase by 39% and 106% respectively. Based on government actuary projections, the number of people living in residential care in the UK will increase to 1.25 million in 2056, compared to 419,000 in 2009. It is difficult to find a more invariable and global tailwind than the aging population.

At the very time when the requirement for residential care provision is being driven upward by demographic change, the total capacity in residential care homes has actually declined over the last decade. For example, mental health capacity has shrunk by 24.8% over the period. The supply/demand imbalance offers unrealised investment opportunities and significantly underpins the asset class, helping it to exhibit low correlations to both traditional and alternative assets.

High and sustainable income

The sweet spot for investing in care is with the operating companies, which are both the providers of the care and the owners of the real estate. The leading operators are creating profit levels in the region of 25%-28% for care provision, with gross fees being linked to RPI. In addition, the requirements to provide the capital and have the appropriate specialist regulatory experience have created high barriers to entry in the sector. This supports such high return levels.

Such a solid level of return – linked to RPI – helps to provide a high and inflation proofed income stream for investors, which is currently producing a running yield in the region of 8%. In the current low interest rate environment, high and predictable income levels are a rare commodity. It is especially favourable when compared to other alternative assets, the majority of which produce no income at all.

Uncorrelated returns

The valuation of care homes is driven by the net fees generated by each bed, rather than property market dynamics, thus insulating returns from a property market, bond market or stock market correction. However, there remains a real estate value underpin to any portfolio, which acts as embedded risk support.

Consequently, the return stream from the care home sector looks very different to any equity, bond or alternative asset and more closely resembles an inflation-linked, high yielding liability – such as a pension or endowment.


The ageing population and the increasing requirement for residential care provides a degree of predictability not afforded to other asset classes. Care sector dynamics are unlike any other form of investment – demonstrating that alternatives can not only provide uncorrelated returns, but can also provide a high and sustainable level of income. The sector is being increasingly recognised as a credible diversifier and investment solution in the continued quest for truly alternative assets and income.


Oliver Harris is managing partner at Montreux Capital Management

Tips to Maximize Your Retirement Savings

Posted on 27th October 2014 by Trevor in Blog

  1. Saving Early. By beginning your retirement saving at an early age, you allow more time for your money to grow. As gains each year build on the prior year’s, it’s important to understand the power of compounding and take advantage of the opportunity to help your money grow.
  2. Set realistic goals. Review your current situation and establish retirement expenses based on your needs.
  3. Focus on Asset Allocation. Build a portfolio with proper allocation of stocks and bonds, as it will have a huge impact on long-term goals.
  4. For the best long-term growth, choose stocks. Over long periods, stocks have the best chance of attracting high returns.
  5. Don’t overweight a portfolio with bonds. Even in retirement, do not move heavy into bonds. Many retirees tend to make this move for the income, however, in the long-term, inflation can eliminate the purchasing power of bond’s interest payments.

The Coming Pension Crisis

Posted on 22nd October 2014 by Trevor in Blog |Finance in Focus

There are very few government exceptions within Western Society that are without serious trouble with their pensions. While politicians conveniently focus on tax compliance and cross border information exchange, and create yet more bureaucracy to shore up tax revenue, they have done an incredible job of distracting from their mismanagement of tax payers’ funds at best, and committing massive fraud at worst. They need to focus on Spending and come to terms with the fact the problem is politicians and government spending. Not a revenue problem like they are trying to tell us. Public unions are simply demanding that governments raise taxes and extort money from other sectors to hand to them.

Government pension funds are a joke. Even in Britain, pensions will run out of cash next year: Amount handed out to future generations will be disastrous. Those under 35 should not expect anything for their taxes.

The 25 largest U.S. public pensions face about $2 trillion in unfunded liabilities, showing that investment returns can’t keep up with ballooning obligations, according to Moody’s Investors Service.

The Times noted that one major pension plan, the Teamsters’ Central States plan, pays out $2.8 billion per year in retirement funds, but only takes in about $700 million from corporations. The plan’s director said he expects the plan to run out of money in 10 to 15 years.

Last year, the Pension Benefit Guaranty Corporation posted a record deficit of $35.7 billion. “Within the next 10 years, more and more plans are going to run out of money,” said Joshua Gotbaum, director of the Pension Benefit Guaranty Corp, in a November report.

On average, the top-20 pension funds in the world invested on average 40.6 percent of their assets in fixed income securities and 42.7 percent in equities.  The average return on Fixed income with the benchmark ten-year Treasury bond paying under 2.9%. The bull run that started in the 1980’s is over, bonds are the bubble and will become toxic.

In New York City, over the past 12 years our pension costs have gone from $1.5 billion to $8.2 billion. That’s almost a 500 percent increase — when inflation totaled only 35 percent. The $7 billion additional that taxpayers are forced to spend on pensions every year is $7 billion more that cannot be invested in our schools and our parks and our social safety net, or our mass transit system, or our climate resiliency work, or our affordable housing efforts, or our tax-relief for working families.

Think about it this way: During our administration’s time in office, we’ve spent $68 billion in taxpayer money on pensions, compared to $5.3 billion on affordable housing. So taxpayers spent about 13 dollars on pensions for every one dollar that they invest in affordable housing.

Pension consultant Girard Miller recently told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities.  When you break that down, it comes to $22,000 for every single working adult in California.

State pension liabilities












Despite the UK’s looming pensions crisis, over a third of Britons says they will never save or invest for their retirement.
So how is your planning going?   Do you have a private personal portable pension?

Talk to Banner and we can help you start or review and enhance what you have – get in touch today on the various options.  03 5724 5100

Can US Interest Rates Never Rise?

Posted on 12th September 2014 by Trevor in Blog

The U.S. gross federal debt currently stands at $17.548 trillion, and net interest payments to our creditors are the fastest-growing item in the budget. In 2014, the Congressional Budget Office projects that the nation will spend $233 billion on interest payments. By the end of the budget window in 2024, however, CBO forecasts that interest payments will nearly quadruple to an astonishing $880 billion. Every dollar spent paying our creditors is a dollar wasted—money for which we get nothing in return. Interest payments threaten to crowd out every other budget item.


To put the $880 billion, single-year interest payment in perspective, here is what we currently spend on other budget items:

  •  Federal Courts – $7.4 billion
  •  Department of Education – $56.7 billion
  •  Secret Service – $1.8 billion
  •  Food Inspection – $2.3 billion
  •  Census Bureau – $1.0 billion
  •  Border Patrol – $12.3 billion
  •  National Parks – $3.0 billion
  •  NASA – $17.6 billion
  •  Centers for Disease Control – $7.1 billion
  • Federal Prison System – $6.9 billion
  • Workplace Safety Inspections – $0.9 billion
  • Immigration and Customs Enforcement – $5.6 billion
  • FDA – $2.6 billion
  • Federal Highway Budget – $40.4 billion
  • Coast Guard – $10.0 billion
  •  Small Business Loans – $0.9 billion
  • Veterans’ Health Care – $55.3 billion
  •  FBI – $8.3 billion


Every debt incurred today will be paid off in the future. The graph above may be shocking to some, but it’s only a very small part of the picture. This is just interest on debt, and doesn’t even include the costs of repaying the principal. Of course, the principal never really gets repaid as the government just borrows afresh to paper over its old debts, but the interest must be covered lest savers stop lending money to the government.

Nor is this only a concern for the future. Last year the government spent more on interest payments (c. $700 bn.) than it did on Medicare (a little under $600 bn.).

Bridge and Peer to Peer Lending

Posted on 26th March 2014 by Trevor in Blog

Are you fed up with low interest rates on cash?

Are you concerned with the valuations of the various stock markets around the world?

Would you like to get an 8.5% fixed return in GBP? Or a 6.5% fixed returns in US$? Or Yen? Or variable returns of 10%+ in Australian dollars?

These kinds of returns can be achieved by bridge finance lending, and peer to peer.

Bridge finance is a form of loan to tide over a project close to completion. This kind of loan is high interest, but quite normal in the building industry. If you as a builder have a development project that is near ready to market but you need a few more months to finish and then sell the properties, you will willingly pay rates north of 10% in order to command the money that ensures your work will be completed and fit for sale.

Peer to peer here is a matter of cutting out the banks. The banks abandoned lending at the small-builder level after 2008 to mask their losses / put more of their money into their capital adequacy ratios.

Banner has several ways which enable you to become a direct lender with a loan-to-value ratio of below 70%. The main point about the loans is that they are short-term; the main point about the security is that it is full-recourse with loan-to-value ratios below 70% (which means that if any particular borrower defaults, the collateral can be sold off at anything up to a 30% discount and still be in positive territory).

Bridge finance interest rates are usually charged between 0.75 – 1.5% per month. Loans generally have durations of between 3 to 12 months. So for the underlying loan businesses to offer and pay these kinds of returns to you as an investor is historically realistic.