Has your non-dom status changed? If so, do you fully understand how your tax is affected?

The rules on the taxation of non-UK domiciled individuals changed substantially in 2017 and 2018. It’s important that non-doms understand whether and how their status may have changed, and plan accordingly.
 
One big change is that we now have a new test for determining whether an individual will be deemed to be UK domiciled, effective from 6 April 2017. Individuals who have been resident in the UK for at least 15 of the previous 20 tax years will be deemed to be UK domiciled for income tax, capital gains tax (CGT) and inheritance tax (IHT). This more objective test, which makes no reference to an individual’s pattern of life or intent in terms of domicile status, could catch people in the UK tax net who have no connection to the UK and ultimately intend to leave it.  
 
Note that individuals born in the UK with a UK domicile of origin – but who have been living abroad and acquired a domicile of choice outside the UK – will be treated as UK domiciled immediately on their return to the UK. There is, however, limited protection for IHT purposes where someone returns to the UK for fewer than three years.
 
Available reliefs
 
Non-doms who became deemed UK domiciled on 6 April 2017 and previously paid the remittance basis charge have been given the opportunity to rebase qualifying foreign assets for CGT purposes. The effect of the rebasing is that, for disposals after 5 April 2017, the base cost used to determine the capital gain will be the market value on 5 April 2017.  Note that returning UK doms are excluded from this relief.
 
Meanwhile the clock is ticking on the opportunity – again available to individuals who have previously claimed the remittance basis – to cleanse their mixed funds. They have until 5 April 2019 to separate such funds into their constituent elements of income, capital and clean capital.
 
New tainting and property rules
 
We also now have new rules relating to the taxation of offshore trusts, with particular impact on settlor-interest trusts. Where settlors have become deemed domiciled, they need to take care not to ‘taint’ these trusts – which would mean the trust becomes transparent for CGT and income tax purposes. 
 
Note too that UK residential property held through corporate, partnership or trust structures established by non-doms will now be subject to IHT.
 
The new rules are complex, particularly in relation to tainting, cleansing and UK residential property. Affected individuals are encouraged to seek professional advice to assess the impact on their tax position and plan ahead before undertaking future transactions.
 
For more information on non-dom taxation, please read our latest factsheet. You can also find separate factsheets summarising the rules around cleansing relief and the tainting of protected offshore trusts.
 

Leave a comment

 Security code