24th November 2016
Tax changes for non-UK domiciliaries
On 6 April 2017 there will be significant changes to the UK tax rules which apply to "non-doms".
At the moment, non-doms who are tax resident in the UK are taxed favourably, having the option of being taxed on the "remittance basis". This means they have the opportunity to only pay tax on UK income and gains and foreign income and gains which are brought in to or "remitted" to the UK. Believe it or not the UK is a relative tax haven for these people.
From 6 April 2017, non-doms who are long term UK residents will move from this favourable treatment to a "compulsory arising basis" of taxation, which will potentially mean that UK tax will be applied to their worldwide assets. This is most definitely a less sunny state of affairs.
A long term resident is deemed to be any person who has been tax resident in the UK for 15 out of the last 20 tax years, so that the new regime will apply from the beginning of the 16th year of tax residence in the UK. This means that anyone who moved to the UK in the tax year 6 April 2002 to 5 April 2003 or previous years may be caught immediately by the new rules when they are introduced next year.
The time frame for deemed domicile status for Inheritance Tax purposes will also be reduced to 15 out of 20 years, rather than the current "any part of 17 out of 20 tax years" test.
Importantly, the UK Government has given a number of planning opportunities to those caught by the new rules but there are strict timetables for implementation. These planning ideas include the setting up of "protected trusts".
For those immediately caught, the planning will need to be done before 6 April 2017. For those who will be caught in future years, there is a 12 month period to undergo one of the planning opportunities which runs from 6 April 2017 to 5 April 2018.
In addition, the protected trusts will need to be set up before the individuals satisfy the 15 out of 20 years test or before 6 April 2017, if later.
If these opportunities are missed, there will be little these individuals can do to plan their tax affairs in the UK.
On top of this, anyone who is a non-dom who owns UK residential real estate through an offshore company (which for years has been the standard planning) will no longer be sheltered from Inheritance Tax. This means that even individuals who do not live in the UK can be within the Inheritance Tax net from 6 April 2017. In addition to the 40% charge on death, there is potential for double taxation where the shares in the offshore company are held in a trust.
Whilst there are no Government sponsored planning ideas for these structures, the individuals involved should have their structures reviewed and any tax planning changes made before 6 April 2017.
We have a dedicated, and multi award winning, international private wealthteam at Foot Anstey who can assist you or your clients with implementing the planning opportunities and reviewing real estate structures within the relevant deadlines.
For further advice or guidance, please contact Deborah Carrivick, partner, private wealth.
Best regards
Alan Hughes, partner Foot Anstey LLP.
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