Introduction of Non-dom tax changes delayed
Due to the early general election in the UK the Finance Bill 2017 will not now include the changes to the tax rules applying to non-doms and their offshore structures that were intended to take effect from 6 April 2017 in order to increase the tax take from non-doms. The introduction of the changes is now likely to be delayed until April 2018.
To recap, the intended changes:
- Deem individuals who have been UK tax resident for more than 15 out of the previous 20 years to be UK domiciled so they no longer qualify for the ‘remittance basis’ and become subject to Income Tax and Capital Gains Tax on their personal worldwide income and gains. In addition, Inheritance Tax could become due on their worldwide assets.
- Give protection to offshore trusts set up by such individuals from Income Tax, Capital Gains Tax and Inheritance Tax where they meet the qualifying conditions.
- Give non-doms who had claimed the remittance basis and paid the remittance basis charge an opportunity to ‘rebase’ the cost of their assets to their value at 5th April 2017.
- Give non-doms the opportunity to ‘cleanse’ mixed funds so that clean capital could be identified.
- Charge Inheritance Tax on UK properties held by non-doms and their trusts where those properties are held by overseas companies.
This U-turn, albeit likely to be a temporary one, means that trusts set up by non-doms prior to 5th April 2017 will protect the settlor from Capital Gains Tax and Inheritance tax but will not shelter the income in an offshore trust in which a settlor can still benefit. In most circumstances a UK resident non-dom settlor will still need to claim the remittance basis and pay the remittance basis charge until the changes are brought in.
Non-doms who intended to fund their lifestyle in the UK by taking advantage of the rebasing election or the cleansing provisions will now need to wait until next year. This may mean that plans to sell rebased assets may now need to be deferred.
Non-doms who had missed the earlier 5 April 2017 deadline to restructure their affairs ahead of the new rules coming into force now have time to do so. In particular, they should seek advice on:
- Removing UK properties from corporate structures;
- Setting up qualifying trusts before they become deemed domiciled; and
- Other pre-deemed domicile planning.
This bulletin is intended to provide general information only and is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. Before making any decision or taking any action which may affect your tax or financial position, you should consult a qualified professional adviser.
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