The taxation of UK resident, non-UK domiciled individuals has been under review in recent years and following the announcements in Summer Budget 2015, the government has now issued an update on how the rules are likely to be applied. The new rules will be effective from 6 April 2017 and will impact on:
- UK resident, non-UK domiciled individuals;
- offshore trustees with settlors or beneficiaries resident in the UK; and
- UK residential property owned through a company (or a foreign entity the UK deems to be a company).
Non-UK domiciled individuals
All individuals who live in the UK, but who are not domiciled in the UK, currently have the ability to claim the remittance basis of taxation. This means they are only taxable on their UK income and gains and any foreign income and gains they bring into the UK. For those who are resident in the UK for more than seven years, there is an annual charge for using this basis of taxation.
From April 2017, the government intends that those individuals who are UK resident more than 15 tax years will no longer have the ability to claim the remittance basis and will be taxable on their worldwide income and gains.
For those who will have been in the UK for more than 15 tax years at 6 April 2017, it is important to plan now by considering the following issues.
- Look at how overseas wealth can be held differently; for example via a trust or company. However, new arrangements are likely to need to be in place before April 2017 to be effective.
- Take advantage of the government’s plans to allow individuals to ‘rebase’ overseas assets for UK capital gains tax (CGT) purposes.
- Clean up overseas accounts which may contain a mixture of original capital, income and capital gains so that tax efficient remittances can be made in the future.
The new rules will also impact on the UK inheritance tax (IHT) regime for non-UK domiciled individuals.
Significant changes are being introduced for offshore trust arrangements, particularly where the settlor is resident in the UK and retains an interest in the trust. The rules are complex and advice should be urgently taken by UK resident settlors of any overseas trust, the trust beneficiaries or the trustees themselves.
UK property held through a company
Many non-UK resident individuals, non-UK domiciled individuals and offshore trustees hold residential property in the UK. Historically there have been UK IHT and CGT advantages to holding property through a company. However, in April 2013 the government introduced an annual tax charge (ATED) on UK residential property for personal use held by a company, valued in excess of £2m. This valuation threshold has since been reduced to £500,000.
Simultaneously, CGT became payable on the disposal of UK residential property owned by a corporate if it fell within the ATED regime at any point prior to sale.
In April 2015 CGT was also extended to non-resident individuals owning UK residential property who, previously, would not have been liable to CGT in the UK.
Gains on UK residential property disposals are now always chargeable to CGT at the highest rate of CGT.
We have also seen a number of changes to stamp duty land tax (SDLT) chargeable on residential property purchases with tax at rates of up to 18 per cent being payable on a purchase.
A further change is intended from April 2017 to address the fact that, currently, many residential property ownership structures are outside of the scope of IHT.
From April 2017, all UK residential property owned via a structure which previously removed it from the scope of IHT will become subject to IHT, regardless of the beneficial owner’s residence or domicile position.
It is therefore likely that UK residential property asset ownership arrangements will need to be restructured. There will, of course, be tax consequences of removing property from such structures (potentially CGT and SDLT in certain circumstances.
For those individuals living in the UK with international tax issues, the next few months will need some careful and thorough professional advice. Many of the planning opportunities that are likely to be available will need to be implemented before the new rules take effect in April 2017.
For more information please get in touch with Gary Heynes or your usual RSM contact.