Changes for Non-UK Domiciliaries: Summer and Winter Finance Bills 2017
15 September 2017
After a further period of uncertainty, with the removal of the draft legislation affecting the taxation of non-UK domiciled individuals from the March Finance Bill 2017, followed by the extraordinary General Election and repercussions that now brings, the Government have now published a second Finance Bill 2017 reintroducing the removed provisions. This is confirmation that they will be effective from the original commencement date of 6 April 2017.
Although there had been some call for these rules to be delayed, the publication of this second Finance Bill confirms that the Government’s project to reform the tax rules for non-UK domiciled individuals (non-doms) will finally now be implemented.
As a brief summary, the changes due to be brought in are as follows:
- The introduction of the deemed domicile rule for all tax purposes for those who have lived in the UK for 15 of the last 20 tax years
- The ability to rebase foreign sited assets for capital gains tax purposes for those deemed domiciled individuals
- Specific measures for those born in the UK with a UK domicile of origin to treat them as UK domiciled
- The ability to cleanse mixed funds for all non-doms who have previously claimed the remittance basis of assessment
- Certain protections for offshore trusts as well as tainting provisions
- The introduction of ‘look through’ Inheritance Tax rules where UK residential property is held within a corporate, partnership or trust structure.
There have been some technical changes made and a welcome clarification around the ability to un-mix pre 6 April 2008 funds, as well as confirmation that the IHT charges in relation to loans provided for the purchase of residential property, or guarantees given, will be limited to the value of the loan.
A number of earlier proposals which did not make the March and ‘Summer’ Finance Bills, such as anti-conduit rules involving offshore trusts, have re-appeared with some adjustments to be enacted in ‘Winter’ Finance Bill 2017-2018 with a view to introducing them from 6 April 2018. While this should ultimately provide more clarity, unfortunately, it adds a further layer of complexity for the 2017/18 tax year as trustees and their beneficiaries will now need to take into account two sets of rules when deciding whether and when to make a distribution or take benefits from an offshore trust.
Whilst these announcements represent mixed news, particularly the retrospective nature of the changes, it does finally allow taxpayers to proceed in earnest in readiness for the un-mixing of their accounts and for those who qualify for the rebasing of foreign assets, calculate the tax consequences of any disposals. However, they are still advised to await final legislation and HMRC guidance as to how the cleansing rules will operate in practice before going ahead with making actual transfers from a mixed fund.
BDO will be publishing a fuller analysis of the updated provisions shortly (as a download from this page) but if you have any queries at this stage please contact your normal BDO adviser.