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Taxing times for the Non-Dom

17 March 2017

Following several years of announcements from the Government on proposed changes to the treatment of ‘non-doms’, culminating in the release of the Finance Bill 2017, do non-domiciled individuals have cause for concern in respect of the changes due to come into effect from 6 April 2017?

Given the time that has passed since the initial announcements in the Summer of 2015, you could be forgiven for not keeping up with the intended changes. So perhaps it is worth a summary of the key proposals included in the Finance Bill.

The main policy objectives were to bring an end to permanent non-dom status and to discourage the use of offshore vehicles to hold UK residential property with the following proposals:

  • An amendment to the deemed domicile provisions, so that any non-UK domiciliary who has been resident in the UK for more than 15 out of the past 20 years, will be deemed to be domiciled in the UK for all tax, including inheritance tax (IHT).

  • To restrict the ability of any individual who has acquired a foreign domicile, but has a domicile of origin in the UK, from maintaining that foreign domicile at any point when they are resident in the UK. Therefore, all individuals born in the UK will be unable to claim the remittance basis of taxation. This new rule will also impact on any excluded property trust that may have been set up whilst the individual had a domicile of choice abroad.

  • To amend the rules on excluded property, so that trusts or individuals owning UK residential property through an offshore company or other vehicle will pay IHT on the value of the UK residential property in the same way as any UK domiciled individual.

  • A facility for remittance basis tax payers to rearrange any mixed funds prior to 5th April 2017 allowing them to identify clean capital for remittance ahead of income and gains.

As a consequence of the changes to the deemed domiciled rule, resident non-domiciled persons (RNDs) will no longer be able to claim the remittance basis of taxation once they have been resident for more than 15 out of the past 20 tax years and will therefore be taxable on their worldwide income and gains from this point. Individuals seeking to lose their domicile once they are deemed domiciled will now have to be resident abroad for a longer period in order to leave the UK Inheritance Tax net.

For those RNDs who are either the settlors or beneficiaries of a trust, the Government has reigned back on proposals to base the new rules on the taxable value of benefits received by any deemed domiciled individual without actual reference to the income and gains arising in the structure.

In respect of the proposals relating to UK residential property held through an offshore structure, the Government has confirmed with effect from 6 April 2017, all offshore structures that hold UK residential property will be subject to IHT whenever a chargeable event occurs such as the ten year anniversary of discretionary trusts or the death of a non-domiciled shareholder. There was hope amongst the profession that the Government would allow some tax relief to encourage the de-enveloping of structures. However, they do not seem minded to provide any incentive in this regard at the moment.

Business Investment Relief

It is also worth highlighting that the Government has expressed its wish to encourage further investment into the UK under this scheme, which allows resident non-domiciled individuals to bring into the UK income and gains causing a taxable remittance. There will be further consultation on this in due course.

What Next?

Anybody who is likely to become deemed domiciled with effect from 6th April 2017 as a consequence of the rule changes should consider whether there is any planning that may be undertaken before this date. It is clear that the government is intent on bringing an end to permanent non-dom status. Therefore anybody who currently enjoys the benefit of this status for tax purposes should review their situation.

If you would like to discuss any issues raised in this note, then please contact a member of our Private Wealth & Tax team to discuss your situation.

This note contains general information only and although it is believed to be accurate at the time of first publication, no representation or warranty is made that it is. It may not reflect the current law or position and should not be used as a substitute for obtaining legal advice.

To discuss anything in the article further please contact Jeremy Duffy in our Private Wealth & Tax team on 01483 543210 or alternatively email jeremyduffy@barlowrobbins.com

You can also find a download version of the 'Taxing Times For The Nom-Dom' article below.

Download

This note contains general information only and although it is believed to be accurate at the time of first publication, no representation or warranty is made that it is. It may not reflect the current law or position and should not be used as a substitute for obtaining legal advice.