We are about to see the most significant changes to the tax rules for non-domiciled individuals since their introduction many decades ago.
Having been first announced in the summer budget of 2015, their introduction has been something of a slow burn to say the least. Since then we have seen a prolonged period of consultation and draft legislation issued in January 2017, followed by yet more comment and more than a little uncertainty over the actual application of the rules. We had hoped for more clarity and certainty in Budget 2017. However most were disappointed.
Put simply, from 6 April 2017 non-domiciled individuals who have been resident for at least 15 out of the previous 20 years will be deemed domiciled for income tax, CGT and IHT purposes. These individuals will then no longer be able to claim the remittance basis of taxation - a claim which previously allowed them to only pay UK taxes on overseas income and gains if they were remitted to the UK. From that date they will be liable to UK tax on their worldwide income and gains and to UK IHT on their worldwide estate.
Possibly the hardest hit group of individuals are returning expats who will now be deemed domiciled for all tax purposes while they are resident in the UK. What this means is that someone who was born in the UK but has lived all their life overseas with no intention of returning to the UK to live can be deemed domiciled simply because they are seconded to the UK by their employer for say six months, or have to return temporarily to look after a sick relative. The fact that these individuals may retain a foreign domicile under general law is irrelevant.
As is often the case there are planning opportunities including making use of the two year window to tidy up overseas accounts containing mixed funds of capital, gains or income so that tax efficient remittance can be made in the future.
Those with significant overseas wealth may be considering how that wealth can be held differently, and more tax efficiently, through a trust or company. However here is the problem. Any such structure will need to be in place before 6 April 2017 to be fully effective; but the Finance Bill is not yet legislation. Indeed it is barely at the start of its legislative process and taxpayers are having to plan around the uncertainty of what happens if the Bill is not approved in its draft form.
While it is unlikely that any substantial changes will be made, given the lengthy period of time and debate it has taken to get the new rules this far, this ongoing uncertainty is far from satisfactory. At least for future Finance Bills we can hopefully look forward to receiving Royal Assent prior to the start of the tax years affected.
For more information please get in touch with Jackie Hall, or your usual RSM contact.