The Treasury have issued the much anticipated consultation document in relation to widespread changes to the taxation of non-UK domiciled individuals in the UK.
The policy aim states an intention to tax long term residents, regardless of their domicile, on their worldwide income and gains. Furthermore individuals who have a UK domicile of origin will be treated as being UK domiciled whenever they are in the UK, regardless of whether they have acquired a domicile of choice elsewhere.
The consultation period ends on 11 November 2015.
Below are the highlights:
Non-doms (non-domiciles) are split into 3 specific categories:
- Non-dom – without a UK domicile of origin
- ‘15 year rule’ – becomes ‘deemed-dom’ and is taxed as a UK dom after 15 out of 20 tax years – from April 2017 onwards
- Applies to Income Tax, Capital Gain Tax and Inheritance Tax, with no access to the remittance basis or overseas workday relief
- Can break deemed-domicile after 6 consecutive tax years outside of the UK
- The 15 year clock reset to zero if return to the UK after 6 consecutive tax years away
- Non-dom – not born in UK, but with a UK domicile of origin
- Subject to the same 15 year rule as above
- Non-dom – born in UK, with UK domicile of origin
- Regarded as UK domiciled whenever UK resident
- Offshore trusts cease to be excluded property trusts whenever the settlor is present in the UK
Treatment of trusts
- Intention to tax deemed-doms on benefits received from trusts
- Protection for deemed-doms when trust created prior to becoming deemed-domiciled, as long as not receiving benefits
- Tax charge arising on benefits will be on the taxable value of benefits, not the on the income and gains arising within the trust
- No need for trustees to recreate the history of income and gains within the trust
- Government considering taxing all non-doms on benefits received whilst in UK from offshore trusts
- Deemed-doms can no longer claim the remittance basis on foreign pensions
- Split years are included in the 15 year count
- Inheritance Tax on worldwide assets after 15 years, not 17 as current rules stand
- Children’s deemed-domicile position does not follow that of their parents, children have their own 15-year clock
A number of areas have not been clarified at this point
- The £2,000 de-minimis limit – will taxpayers with less than £2,000 of offshore income and gains have the burden of reporting?
- The review of Double Tax Agreements with countries such as India and Pakistan
- The potential to align the 6 year departure rule where it relates to Inheritance Tax exposure of UK-doms with that of non-doms
- The non-dom spousal election for Inheritance Tax
Although the new rules are due to come into force from 6 April 2017, non-doms should review their position now and seek the right advice.
Action points could include:
- Review and confirm your own domicile status and the domicile status of family members
- Make preparations for periods abroad – they will now need to be for 6 years to reset the 15 year clock
- UK resident non-doms should consider establishing trust structures ahead of 6 April 2017
- For individuals with trust structures already, review their terms and the assets held, it may be advantageous to ‘rebase’ or extract certain assets (e.g. homes or artwork)
- If assets are owned via corporate structures consider introducing a trust into the structure
- In marriages where one spouse is a non-dom and one is UK-dom – consider no gain/no loss spousal transfers and establishing family trusts via the non-dom spouse
- Non-doms who will become deemed-dom on 6 April 2017 may wish to consider gifting to family members before that date.
The consultation paper is available to read here>>
For further information about the Non-Domiciles Consultation Paper please contact a member of the Tax team directly.
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