Non-dom tax changes - where are we now?

Vince Wood talks to Gill Smith, partner in Moore Stephens' Private Client Tax team, about the current situation for non-doms in the UK and what can be expected in the near future.



Video transcript

Vince:           
I’m here with Gill Smith, private client tax partner to discuss the taxation of non-doms. Gill, we know there are changes, and we know that those changes were due to come in on 6 April 2017, but due to the snap election, I think it is fair to say that many of us have lost the plot because there has been a lot of uncertainty hasn’t there?

Gill:               
Yes that’s right. It was anticipated that the new regime for non domiciliaries would come into effect from 6 April 2017. At that date, we had draft legislation that was expected to be finalised and many clients had undertaken tax planning based on that draft legislation. However, with the General Election, the provisions were dropped from the Finance Act but it has recently been confirmed that they will shortly become law, back-dated to 5 April 2017, so broadly we are back where we were.

Vince:           
So what exactly were the changes? I know the remittance basis is no longer an option for many non-domiciliaries, but there is more to it than that, correct?

Gill:               
Yes from 6 April 2017, any non-dom who has been in the UK for more than 15 out of the last 20 tax years is taxable on a worldwide basis, so on any income or capital gains arising to them anywhere in the world. I think a particularly key thing to note is that income and gains that have not been taxed to date when they were on the remittance basis still cannot come to the UK without a tax charge.  I think there is a lot of confusion on that point.

Vince:           
Do you think most clients are prepared to stay in the UK and pay tax they didn’t have to pay before, or are they leaving?

Gill:               
Our recent non-dom survey showed that 46% of non-doms are considering leaving the UK, so it’s clear that non-doms have concerns about their futures. However, it should be remembered that a client who had been in the UK long-term is likely to have been paying an annual remittance basis charge of £90,000 each year so they would have that saving against their worldwide basis of taxation.  Also HMRC have introduced a number of reliefs, for example in some cases assets can be rebased to their value at 5 April 2017. Also un-mixing of offshore funds should enable certain amounts to be brought to the UK tax free.

Vince:           
Offshore trusts have always had advantages for non-domiciliaries, do the changes bring those advantages an end? And what about the Paradise Papers?

Gill:               
Despite press reports to the contrary it is entirely legitimate to have assets offshore, or be the settlor or beneficiary of an offshore trust. The important thing is of course to pay any tax due as a result. Prior to the non-dom changes where an individual was the settlor of an offshore trust the income could be read through to them as if it was their income.  Obviously, the remittance basis protected this, but moving on to a worldwide basis could have created significant tax liabilities for settlors particularly if the same legislation had been brought to bear on capital gains. However, HMRC are not reading the income and gains of a trust through to a settlor provided there is no additions to the trust after they become deemed domiciled here. That is very tightly defined and settlors need to be very careful that they do not add to trusts but assuming that to be the case then they will just be taxed like any other beneficiary, that is to say, they would be taxed as and when they receive a benefit or distribution from the trust.

Vince:            
So there you have it, generally the news for non-domiciliaries is not the best, but all is not lost and with careful planning, there are still some great opportunities available.

For further information on the non-dom tax changes, please contact a member of our Private Client Tax team.

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