HFM Columbus warns UK non-doms of 'pitfalls' with IPP drawdowns

Added 22nd September 2016

UK-based wealth manager HFM Columbus has warned non-domiciled UK residents of the pitfalls of making large withdrawals from their international pension plans (IPP) ahead of changes to rules governing remittances.

HFM Columbus warns UK non-doms of 'pitfalls' with IPP drawdowns

Due to come into force in April next year, the rules mean that non-UK domiciles who have resided in the country for more than 15 of the past 20 tax years will now automatically be deemed UK-domiciled.

This means that a non-domiciled UK resident will be liable to pay tax on their worldwide income and gains from that point, whether the proceeds are remitted to the UK or not.

“Anyone currently filing on the remittance basis should be aware that withdrawals from most IPP’s by way of an annuity arrangement (as distinct from other methods of withdrawal) prior to 6 April 2017 are not subject to UK tax until remitted,” said HFM Columbus’ international planning specialist, Gina Garman.

As a result, HFM Columbus, a financial planning and asset management house, is now urging many of its international clients to be careful about making large withdrawals using annuity arrangements in IPPs.

60% withdrawals

Garmin pointed out that some flexible annuity arrangements can allow non-doms to take 30% of the value of the fund in the first and second year, which in theory could be used to withdraw 60% before the new non-dom changes kick-in. 

However, she warns clients that although this may look like an attractive option, "it is vital to be aware of the pitfalls".

“In the first instance there are the scheme rules to consider. The Trust Deed of each IPP is specific to that arrangement, so it is vital to check what is permitted and how much in terms of the extent to which large amounts may be drawn," explains Garman.

She cautions that such large withdrawals in the short term may be challenged by the UK tax authorities.

“It’s also important to bear in mind HMRC’s view of what is reasonable. We have seen annuity profiles which offer a greater proportion of the fund to be drawn in the short term than the example above and which in our view are likely to be challenged by HMRC,” adds Garmin.


In March, Rachel Griffin, financial planning expert at Old Mutual Wealth, told International Adviser the changes could mean that non-UK domiciles are thousands of pounds better off if they hold onto their overseas assets until after they change their status. 

IHT rules

In August, the British government announced plans to extend its inheritance tax (IHT) rules to cover properties held by non-domiciled residents in an offshore entity. 

The planned extension of the IHT charge will apply to both individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled. 

Once the legislation comes into effect, the Treasury said: “Where a non-domiciled individual is a member of an overseas partnership which holds a residential property in the UK, such properties will no longer be treated as excluded property for the purposes of IHT.”

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