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  • The Finance (No.2) Bill 2017 – Strong and Stable or Mist and Mirrors?

    15 June 2017

    The Finance Bill 2017 – where are we now on the non dom changes?

    So where are we now? This time last year the UK voted to leave the EU. Donald Trump – a business tycoon – successfully found his way into the Chair of the White House and Theresa May’s pursuit of a greater conservative majority in the house of commons was cut short by the Corbynator…

    Some have speculated that Boris Johnson is next in line to the Tory throne. Queue the theme track to Noddy…

    You may or may not remember that the Finance Bill 2017 was stripped of most of, many of its clauses before being enacted. The more complex provisions of the bill could not be scrutinised before the dissolution of parliament and are expected to return in the form of a Finance (No.2) Bill 2017.

    Of the many provisions retracted, I refer to two. Namely, those provisions relating to returning non-UK domiciled individuals and the new deemed domicile rules for long-term residents claiming the remittance basis of taxation i.e. foreign income and gains only being taxable once remitted to the UK.

    What is domicile?

    A basic description of domicile is the place in which one considers to be his or her main home at a given point in time. There are three categories of domicile…

    • Domicile of Origin – This is acquired at birth and is usually your fathers domicile when you were born
    • Domicile of dependence – Until you are of age (16) your domicile follows that of your legal guardian e.g. your parent(s)
    • Domicile of Choice – Once you become of age you are legally able to acquire your own domicile of choice. This will be more of an ‘actions speak louder than words’ approach and will be determined on a number of factors. It is often difficult to lose a domicile of choice as you must prove through action that you intend to reside in another country indefinitely.

    Returning Non-Doms

    The current position is such that non-domiciled individuals, regardless of residency are not subject to Inheritance Tax on their worldwide assets, only their UK situated assets.

    However, as was introduced in the Finance Bill 2017, the UK government feel that if your domicile of origin is that of the UK, that it is fair for you to fall within the UK IHT net for any periods of UK residency. Similarly, where one leaves the Mafia it is fair for him/her to be ‘whacked’… (please refer to the plethora of Italian mobster movies).

    Therefore, one with a UK domicile of origin should be careful not to become resident, especially in any year in which a fortune teller has given sound and regulated advice in relation to a year of death, else one’s grieving family may bear the brunt of the UK’s 40% death tax on the deceased worldwide assets!

    Deemed Domicile and Remittance Basis of taxation

    Generally speaking, the UK tax code provides that those who are resident in the UK are subject to taxation on their worldwide income and gains. However, where one holds the status of being domiciled outside of the UK, one may claim the remittance basis of taxation.

    Broadly speaking, this allows one’s foreign income and gains to avoid the UK tax net so long as one’s foreign income and gains remains distant…in a land far far away. Once those foreign income and gains are brought or ‘benefitted from’ on-shore they become subject to UK taxation.

    However, one might become deemed domicile where he/she is resident in the UK for 17/20 of the previous tax years. Where this is the case, the remittance basis of taxation is no longer available.

    The Finance Bill 17 reduced the time frame for becoming UK deemed domicile to 15/20 of the previous tax years.

    The current climate and uncertainty

    The future of the UK is about as ‘strong and stable’ as Theresa May’s election campaign. Theresa May has effectively lost her mandate for a hard Brexit, her mandate for passing through any significant legislative changes as were proposed in the manifesto i.e. social care, education and immigration.

    As mentioned above, the provisions retracted from Finance Bill 2017 shortly before it received royal assent, technically speaking, are not in force. However, it is expected that these provisions are to be reintroduced in much the same format once the new government is formed.

    However, uncertainty lies as to the date from which these provisions are to be enforced. The government have not refrained from enacting provisions with retrospective effect – who’s to say they won’t do it again? Alternatively, it could be enacted from April 2018.

    What is sure is that Advisers are aware of these provisions and are fairly certain they will return – they were not of particular controversy and were widely accepted within parliament.

    However, from a planning and practical viewpoint it is difficult to respond to legislation which has not been enacted with uncertainty as to when it shall take effect.

    The Chartered Institute of Taxation (“CIOT”) addressed a public letter the treasury and state that in reintroducing the retracted provisions with retrospective effect would “impose a charge to tax rather than say, having the effect of relieving or clarifying legislation currently in force”. CIOT have requested clarification at the earliest opportunity – however, I would not expect a response any time soon.

    With the amount of stress on government, especially concerning Brexit, who’s to say there will be sufficient time to reintroduce and scrutinise a new bill. It might be that this is delayed into a post Brexit bill.

    Perhaps a fortune teller might not be such a bad idea…

    If you have any queries about The Finance Bill 2017, or you have any questions please do not hesitate to get in touch