Ercan Demiralay explains the latest non-dom rules and their retroactive introduction.
Changes to the taxation of non-doms that were scheduled to go live earlier in the year are now set to be re-introduced and will take effect from 5 April 2017. These and various other tax policies such as Making Tax Digital were removed indefinitely from the Finance Act 2017 when the Prime Minister announced a snap election for 8 June.
Such a move led to criticism from professional advisors because shelving these proposed changes then left them in a state of uncertainty, with an inability to properly forward plan for their clients because of a lack of clarity over what to expect and when. This has now been further heightened by the retroactive nature in which the latest policies are set to be re-launched in a second Finance Bill.
What is changing?
The previous rules meant an individual was deemed domicile in the UK for tax purposes if they spent 17 of the last 20 years in the UK. The new rules will apply to non-doms who have lived in the UK for more than 15 tax years. They also apply to those born in the UK with a UK domicile of origin, who have then chosen to domicile elsewhere and later returned to the UK (if you're not sure what this means, or if it applies, be sure to get in touch). These people will be deemed domiciled which means all their income (including that earned overseas) will be liable for UK taxation.
The remittance basis will no longer apply to people who are deemed domiciled. Furthermore a non-domicile holding property in the UK from 6 April 2017 through an overseas corporate structure (often referred to as an enveloped dwelling) will now be liable for inheritance tax.
How to plan for this
Some non-doms (but not those born in the UK with a UK domicile of origin who come back to the UK asserting a foreign domicile) could potentially make use of certain trusts which might protect their foreign assets from exposure to UK tax.
You may have even set up such a trust prior to the Finance Bill in the hope the legislation would remain unchanged from previous drafts. However, whilst broadly the same there are some key amends which means you should seek professional advice to ensure what you have set up is still sufficiently fit for purpose.
The content of this post is up to date and relevant as at 20/07/2017.
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