UK Government Publishes further Consultation Document re Changes for Non-Doms
16 August 2016
Many UK resident non-UK domiciled individuals (non-doms) are about to pay tax on worldwide income and gains for the first time, and those with UK residential property might be newly exposed to Inheritance Tax both during life time of the property and upon the death of the owner.
On Friday 19th August 2016, the Government progressed to the next stage of the domicile changes with the publication of a further consultation document which sets out additional details about the new rules taking effect from April 2017.
Professional tax advisors are in the process of analysing the detail in the new document and will provide clarity in relation to the key changes and new information within the coming weeks.
Some of the key points of concern are as follows:
- The government has confirmed its intention to pursue charging UK residential property held in offshore structures to inheritance tax (Companies and Trusts)
- Individuals who have been resident in the UK for 15 of the last 20 years will become deemed domiciled for all tax purposes
- The government will be introducing the proposed rules for individuals born in the UK with a UK domicile of origin, effectively meaning that such individuals who return to the UK cannot maintain non-domicile status for UK tax purposes
- There could be a capital gains tax rebasing available for individuals becoming deemed UK domiciled on 6 April 2017(potential benefit)
- For individuals with mixed bank accounts, there is to be a one year window for them to segregate the funds into separate accounts (could be an advantage but work will be required to clearly identify clean capital)
- Individuals who become deemed domiciled will have full use of their foreign losses from that date onwards
We await the revised draft legislation on many of the points outlined above but believe there may be some interesting opportunities for non-UK domiciled taxpayers to utilise and benefit from.
In the meantime, the dilemma for a non-dom is – 'Do I wait until the proposed new rules are clear and final – or do I act now?'
To answer that properly each non-dom needs to weigh up the risk of making changes that may eventually turn out to have a higher cost than was initially anticipated against the risk of running out of time to make changes that, if implemented earlier, would have been commercially desirable.
Identifying and confirming short, medium and long term commercial and family objectives is key. This however often involves considering multigenerational aspirations, assessing the impact of the changes on a wide range of assets and considering how such assets often located in various countries, each with different funding arrangements, are affected by the proposed changes. Usually asset protection, growth and cash flow requirements all need to be balanced.
Clearly it takes time to identify and decide upon a suitable strategy, and for more complex situations, it may take several months following which the chosen plan, still has to be implemented.
Some issues that should be considered by non doms include:
- Are the existing structures for holding and managing assets and indeed the assets themselves still appropriate, given that worldwide income and gains will for the first time be subject to UK tax,?
- How to balance direct ownership of assets against ownership via trust structures when there are both pros and cons of the new legislative changes?
- Is it clear how new UK tax liabilities may be funded?
- How might any changes dovetail with other commercial considerations?
- Is it possible to segregate pre and post April 2017 bank accounts?
- Do individuals or companies need to review their residence status?
If you have any question or need to seek advice we are happy to help where possible and can if needed put you in touch with the relevant tax expert.