What effect will the 2016 Budget have on non-domiciled individuals?

In the July 2015 Budget, the Chancellor announced significant changes to the treatment of long-term resident non-doms to take effect from 6 April 2017.
From 2017, non-doms who have been resident in the UK 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 Budget papers only make very limited, but potentially important, reference to the changes. These are:
  • 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 individuals who become deemed domiciled at a later date will 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, although again it is not clear whether this applies to those becoming deemed domiciled on 6 April 2017 or at a later date. 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.
  • 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.
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. Again, this lack of detail is unsettling for clients and more detail is urgently required.