Danby Bloch: Legislative limbo ends for non-doms

What are the changes and what should advisers and their clients be doing
about them?

Helm Godfrey chairman Danby Bloch

The Government left out of the pre-election Finance Act 2017 the radical new rules for non-UK domiciled people that were due to come into force in April.

This had left non-doms feeling pretty uncertain about their status and future, especially if they are also affected by Brexit.

But the legislative limbo came to an end this week, with HM Revenue & Customs issuing a statement announcing the provisions in the spring Budget would go ahead and apply from the originally planned dates.

It said: “[The government] expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions. Where policies have been announced as applying from the start of the 2017-18 tax year or other point before the introduction of the forthcoming finance bill, there is no change of policy and these dates of application will be retained.

“Those affected by the provisions should continue to assume that they will apply as originally announced.”

So what do advisers and their clients need to be aware of?

Taxing times

Non-doms, remember, can generally enjoy some very special tax privileges – making the UK one of the world’s most attractive tax havens for certain people who are resident here, but are not treated as domiciled in the UK for tax purposes.

They are UK residents who are not regarded as having their permanent home (“domicile”) here. Mostly, someone’s domicile is pretty clear – but it can also be a complicated area for some clients.

One of their privileges is that non-doms may not have to pay UK tax on foreign income or capital gains as long as they do not remit them here. Mind you, they have to pay a hefty fee to HMRC to be on this remittance basis if they are UK resident for seven out of the previous nine tax years or 12 of the previous 14 years. They may also avoid having to pay inheritance tax on their non-UK assets.

The new rules change who is to be treated as domiciled outside the UK, as well as making some important amendments to the tax rules.

What you need to know about the Finance Act

The 15/20 rule is probably the most important change for most non-doms. This provides that a non-dom would be treated as UK domiciled for the purposes of all taxes in a tax year – inheritance tax as well as income tax and capital gains tax – if they have been resident in the UK for at least 15 of the previous 20 tax years.

So for the first time, long-term non-doms will be subject to UK tax on their worldwide income, capital gains and estates.

There is also a provision to make it harder for many people to stop being treated as a non-dom. Non-doms born in the UK and who have a UK domicile of origin will be treated as UK domiciled for income tax and capital gains tax purposes in any tax year in which they are UK resident.

They will then also be treated as UK domiciled for inheritance tax after just one tax year of residence for tax purposes.

Some good news for non-doms includes reliefs for rebasing and the segregation of mixed offshore funds. Normally, someone who becomes deemed to be UK domiciled would be subject to UK CGT when they disposed of assets.

However, under the new rules, those who become deemed domiciled on 6 April 2017 would generally not have to pay CGT on the proportion of any non-UK gains that accrued before 6 April, 2017. They are also given an opportunity to rearrange their overseas mixed funds and divide them into tax-free capital, income, gains etc, by moving them into segregated offshore accounts.

Non-doms who own UK residential property through a non-UK company have been able to avoid UK inheritance tax because the shares in such companies are generally non-UK assets. This approach and other ways of holding interests in UK residential property will not escape inheritance tax under the new rules.

Danby Bloch is chairman at Helm Godfrey

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