The government is putting the UK resident but not domiciled in the UK for tax purposes (the non-dom taxapyer) back in the spotlight again. The changes are in response to its perception that a considerable amount of property in London is held by offshore structures. But rather than target those structures specifically, the government has sought to widen the net to catch anyone in the UK.
So, what’s next?
The Budget – take two
A number of tax changes were guillotined to make way for the general election. As well as resurrecting the proposed UK non-dom changes, these changes will be retrospective and take effect from 6 April 2017.
Isn’t that unhelpful and unfair?
Controversial – yes. Unexpected – no.
Unhelpful and unfair – maybe. At least some certainty has been communicated so taxpayers can seek advice and can plan accordingly.
What are the non-dom changes?
There are a few:
- Taxpayers who have lived in the UK for 15 of the last 20 years will be deemed domicile in the UK for tax purposes
- Taxpayers born in the UK who subsequently obtained a domicile of choice elsewhere and now return to the UK will be deemed domiciled in the UK for tax purposes
- The remittance basis will no longer be available to those deemed to be domiciled in the UK for tax purposes.
Why has the government done this?
Arguably to collect more tax from non-doms without provoking them to actually leave the UK permanently.
Are there any other effects?
Yes. There are proposed changes to the way that Inheritance tax will apply to offshore structures. Specifically it is proposing “look through” provisions for UK residential property held by offshore trusts.
Re-basing of assets
Individuals who become deemed domiciled in April 2017 will be able to rebase directly held foreign assets to their market value on 5 April 2017. Consequently non-doms will not have to pay tax on the element of the gain made whilst they were non-domiciled. Re-basing will apply on an asset-by-asset basis and individuals can choose to rebase only those assets that show a gain. Those individuals who become deemed domiciled after April 2017 will not be able to rebase their foreign assets.
Cleansing “mixed funds”
A number of non-doms hold mixed funds outside the UK, i.e. a fund of income, capital gains and capital. Funds brought into the UK will be deemed to be remitted in the order that gives the highest tax liability. The higher of is becoming a common feature in recent tax legislation.
Anyone deemed to be domiciled from April 2017 may never be able to remit the clean capital element to the UK.
The government has announced a window of twelve months from April 2017 for those individuals to rearrange their mixed funds and separate out the various elements. This treatment will only apply to liquid funds held in bank accounts.
What should non-doms do?
Taxpayers should seek advice – now, The clock is ticking.
If you wish to discuss a matter involving the non-dom changes, please contact me Paul or Andy at firstname.lastname@example.org or email@example.com.