Can you do anything to prepare for changes to taxation for non-UK domiciled residents from 6 April 2017?

The Spring Budget 2016 announced further details about changes to the tax system applied to UK non-domiciled taxpayers already announced in the budget of 2015. The non-dom reforms aim to change the treatment of individuals who, although they are resident in the UK for tax purposes, are not domiciled in the UK.

The final details of all the changes proposed are still waiting final draft, they will be included in the Finance Bill 2017 (due December 2016), but below is an overview of the changes from April 2017. There is some useful information on the subject in our blog on Business Investment Relief, which even though you may not be interested in the Relief, I do advise you read for information concerning taxation for non-doms. The article on Capital Gains Tax for non-doms that came into force in the 2016 tax year (on 6 April 2015) is also a useful source in this context.

Definition
The draft legislation due to be published in final draft as part of the Finance Bill 2017 confirms that a non-UK domiciled but UK resident individual will be “deemed domiciled” for six years after they leave the UK for income tax and capital gains tax purposes in any financial year if they meet any of the defining conditions below. Anyone entering and then leaving the UK will automatically become UK domiciled again should s/he return to the UK, and become resident. The definition of “domicile” depends on whether the individual was:

  1. Born in the UK
  2. Have a domicile of origin in the UK
  3. Are UK-resident

Three major changes are proposed that will come into force from 6 April 2017:

  • 15 out of 20-year rule: Non-doms resident in the UK for fifteen of the last twenty years will be deemed UK-domiciled for income tax and capital gains tax (CGT) purposes from the beginning of tax year 2016.
  • Periods of residency: Anyone born in the UK with a UK-domicile of origin, who has a domicile of choice elsewhere, will be seen as UK-domiciled for periods of residency in the UK.
  • “Deemed domicile”: Existing inheritance tax rules already provide for “deemed domicile” in certain circumstances, but new rules yet to be announced will charge IHT on all UK residential property held by non-doms through an offshore company or trust.

What will actually change?
When all the changes actually come into force in April 2017, they will affect income tax, capital gains tax, and inheritance tax. However, as the actual changes to income tax and inheritance tax are still waiting announcement this is a waiting game during which the most useful thing you can do if this is likely to affect you is to be sure of your residency status.

Conclusion
Aim to understand your annual income tax and capital gains tax liability when taxed on the worldwide basis from 6 April 2017 if you are a long-term resident non-dom. Non-doms likely to be “deemed domiciled” from 6 April 2017 should consider maximising the benefit of the remittance basis for the 2015/16 and 2016/17 tax years. Understanding what will be needed for reporting purposes (assets, offshore income/gains, etc.) and executing a tax-planning strategy now could save you a lot of time, money, and stress.

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