HMRC released their update on the proposed changes for non-doms on Friday 19 August, together with some draft legislation. Despite rumours of delay or even postponement of these changes, following the uncertainty of the Brexit vote, it is clear that 6 April 2017 will be the start date for some very significant changes for non-doms in the UK and foreign owners of residential property.
The update from HMRC covers:
Deemed domiciled in the UK for all taxes after 15 years
As expected, individuals who have been resident in the UK for 15 out of the last 20 years will be deemed as domiciled for all taxes from April 2017 and the remittance basis will therefore no longer be available. HMRC have recognised some complexities with this transition and have included two notable reliefs:
- Foreign assets can be rebased to their value in April 2017 and capital gains only charged on any increase in value from that date.
- Mixed funds can be separated out during the following year – 2017/18 – to ensure clarity of what is being remitted. This is a new proposal.
Both provide a one-off chance for planning.
Rebasing overseas assets mean that any likely sale of overseas assets should be delayed until April 2017, while the mixed fund segregation provides potential for even more significant planning.
Overseas accounts which contain a mixture of capital, income and gains could now be “cleaned” up and segregated so that non-doms have clarity on their future remittances. This has not been possible since 2008 and could create a significant planning opportunity for many.
Residential property owned by foreign companies
As expected, the rules seek to charge IHT on residential property held in companies by no longer treating shares in foreign companies holding residential property as excluded from IHT. This means that non-UK residents, trustees and non-UK domiciled who own residential property in the UK through an offshore company will have reporting requirements and tax to pay. Registration with UK HMRC, record keeping, identifying assets and valuations will all add to the expense and complexities of these existing arrangements with likely tax charges for unwinding them, but many will now be rushing to restructure as soon as possible.
Non-resident trusts set up before the deemed-domicile rules apply should be protected from the more onerous income and capital gains tax rules, while also being able to protect their current IHT position. Rather than seeing the death of overseas trusts, these could now provide a good alternative to hold overseas assets for those losing the remittance basis, on very favourable terms. Overseas trustees could find some significant business heading their way.
Business Investment Relief
BIR has been around for a few years and allows non-doms in the UK to remit overseas income and gains, without tax, if they make a suitable business investment – including one in which there is a residential rental business. However, the rules are complex, and the government want to further encourage use of this relief and are inviting comment on how to make the relief more attractive.
While the introduction of these rules will not be welcome by many non-doms, within the detail there is room for planning, specifically designed by HMRC. However, the timescales are tight and any non-dom, even those who are fully taxed on the arising basis, should be considering their options now.
If you would like any more information on this issue please contact Gary Heynes.