Non dom tax changes: Signpost to key Enterprise Tax guides
Background and history
Public pressure and a bare cupboard or three at the Treasury has led to further tightening of the non dom tax rules. The Government is walking a fiscal tightrope as non doms generate a disproportionate amount of income for the Treasury’s coffers.
The non dom tax changes were first announced in Summer Budget 2015 and will take effect from 6 April 2017. Since the original announcements, we have seen various periods of formal consultation – and a continual process of informal consultation with stakeholders. This, by any standards, is a long period of consultation.
Draft legislation has been published in virtually all areas as we speak. Generally speaking, most questions have been answered, though one or two have been raised.
Highlights – non dom tax changes
Income tax and capital gains
Non doms have previously been provided with the privilege of leaving non-UK income and gains overseas without paying UK tax unless brought to or enjoyed indirectly in the UK. Up until 2008 this was automatically, and freely available, to any non dom. However, since that time, long term residents have had a ‘pay a fee’ to avail themselves of this beneficial tax treatment. Then longer the stay, the higher the fee.
This has led to the charge that the UK is a tax haven. That aside, this is clearly a beneficial basis of taxation and, until the non dom tax changes, had no sell by date.
However, the non dom tax changes introduce a long stop date for the income tax and CGT treatment. This treatment will come to an end once a non dom taxpayer has been resident in the UK for 15/20 tax years. This will be known as becoming ‘deemed domiciled’.
There will a CGT rebasing relief for those affected by these changes who hold foreign assets – this is known as rebasing relief.
For those with mixed funds, a temporary window will be provided to separate income from capital.
There will changes to the Business Investment Relief (BIR) scheme.
Inheritance Tax (“IHT”)
The current deemed domicile provisions for IHT purposes (at the moment after 17/20 tax years) will be aligned with the deemed domicile rules for income tax and CGT purposes at 15/20 tax years.
There will be seminal changes to the definition of ‘excluded property’ such that it will no longer be possible for UK residential property to benefit from this beneficial status.
Changes in relation to trusts
The new deemed domicile provisions would, in the absence of any ‘relieving provisions’ play havoc with existing trusts established by those who will become deemed domicile. For instance, a newly deemed domiciled settlor might suddenly have become subject to capital gains crystallised by the Trustees and similarly be taxable on foreign income as it arose within the structure.
The non dom changes take this in to account and disapply some of the anti-avoidance rules that might otherwise apply. The result is that, with some exceptions, a beneficiary should only be taxable on the receipt of payments or benefits received from a trust.
For more information on these changes please see the signpost below.
Signposts to related articles
- Setting the scene and what is domicile?
- Income tax and CGT changes (including rebasing, mixed fund rules and Business Investment Relief)
- Inheritance Tax (“IHT”) changes (including revisions to excluded property)
- Returning non-doms – a tax pariah?
- The changes in relation to trusts
- A summary of actions and planning ideas
If you, or your clients, are affected by the non dom tax changes then please get in touch.