The cost of being non-domiciled individual (non-dom) and claiming the remittance basis has increased astronomically since April 2008, as is the complexity of the taxation of non-doms with the dramatic changes due to come into force from 6 April 2017.
These will primarily impact non-doms that are long term UK residents; particularly those individuals who have UK tax residence status in 15 tax years during a 20 year period. Those individuals will be deemed domiciled in the UK in the following year and will be subject to tax in the UK on all income and capital gains. In addition, changes to the taxation of offshore trusts, and inheritance tax (IHT) changes regarding UK residential property held by an offshore entity, will hit long term non-doms.
What will it mean in practice?
Some families will need to make some difficult life decisions, as well as considering asset planning, rebasing and possible payment of the remittance basis charge - all in an extremely short timeframe. In many instances these changes counteract the benefit of what was legitimate tax planning around property ownership and result in increased professional and tax costs.
Many will consider de-enveloping UK properties, despite the significant cost. While a possible de-enveloping relief was rumoured, this is unlikely to come to fruition, leaving individuals with a structure that doesn’t provide IHT protection and comes with additional annual charges.
The proposals do include a couple of positives, including the option to rebase offshore assets or unravel offshore mixed funds. However, these opportunities do not apply to all non-doms, instead providing an arbitrary and unfair advantage. In fact, two individuals, arriving in the UK just a few days apart, could receive significantly different tax treatment under the deemed domicile rules.
Could Brexit rock the boat?
Despite rumours that Brexit could delay these proposals, recent consultations make it clear that the Government is committed to keeping the original timeframe. This is pressing ahead despite limited information being available to allow individuals to make informed decisions. The legislation is not expected for release until 5 December 2016 and we could see further amendments, particularly on the reform of offshore trusts, as representative bodies, including STEP, have suggested alterations. In addition, an announcement in the Autumn Statement, restricting planning options, would not be unexpected.
Due to the complexity of these changes, their predicted impact and the sheer lack of clarity to date, some specialist private client law firms are effectively banning staff holidays from 1 January 2016 until 5 April 2017 to try to cope with the changes but, even this, will undoubtedly leave some clients without appropriate advice. Whilst taking action before seeing the final legislation is a risk, so is waiting to start discussions with professional advisers, who will be inundated by clients wishing to take action before the new rules bite.