In the July 2015 Budget, the Chancellor announced significant changes to the treatment of long term non-doms to take effect from 6 April 2017.
From 2017, non-doms who have been resident for more than 15 out of the previous 20 tax years will be taxed as if they are deemed UK domiciled. In addition, individuals with a UK domicile of origin will revert to that status for tax purposes when resident in the UK.
For such a significant change to the taxation of this group of taxpayers, the lack of detail since the original announcement has been concerning.
The recent Budget only make very limited, but potentially important, reference to the changes. These are:
- Confirmation that non-doms who establish offshore trusts before becoming deemed domiciled will not be taxed on income or gains retained within the trust. Previous updates have indicated that UK source income would remain taxable on the non-dom in these circumstances, but no reference is made to this in the Budget documents.
- Non-doms who become deemed domiciled from April 2017 will benefit from an uplift in the cost basis of their non UK assets. It remains to be seen whether this applies to assets held via offshore trusts or whether individuals who become deemed domiciled at a later date will also benefit from this uplift.
- Non-doms who become deemed domiciled will benefit from transitional provisions with regard to offshore funds to provide certainty on how amounts remitted to the UK will be taxed. This may give a measure of relief from the notoriously complex mixed fund rules which determine the source of remittances made to the UK by non-doms.
The measures announced are helpful at least to some extent, but the details are limited and there are many other areas that need considering prior to April 2017. These delays cause uncertainty and may result in affected taxpayers choosing to leave the UK.
There are no further announcements on the proposal to charge owners of UK residential properties held through non-UK structures to inheritance tax with effect from 6 April 2017. Clarity on these issues is particularly important for Middle East investors into UK residential property.
Moore Stephens will continue to monitor these developments. Please contact us if you have any queries regarding these issues.