Rebasing relief – non dom tax changes & CGT
As one may be aware, and if one is not then we would recommend consulting our guides on the non dom tax changes, there will be a long stop date on the length of time that a non dom can avail themselves of the remittance basis of taxation. Rather than them being able to do so indefinitely, there will be a curtailment once one has been resident in the UK for 15 out of the previous 20 tax years.
However, one interesting change for capital gains tax (“CGT”) purposes, is the potentially attractive gift of ‘rebasing’.
Rebasing relief – the genesis
The original consultation paper (“ConDoc”) stated:
‘The Government agrees that it would be punitive to require long-term resident non-doms to pay CGT on gains that have accrued on foreign assets held while the individual was a non-dom.’
It went on to say that:
To address these concerns… those who will become deemed domiciled in April 2017 because they have been resident [in the UK] for 15 out of the past 20 years will be able to rebase directly held foreign assets to their market value on 5 April 2017.
The new relief was confirmed in the draft Finance Bill 2017 – albeit with some minor changes to those that were published in the ConDoc.
The relief allows us to rebase an asset. What does this mean? It essentially means that on a future sale, rather than using the historic base cost of the asset in the CGT computation, we can instead use the value of the asset on 6 April 2017.
Clearly, for assets which have been held for many years this is rather beneficial.
Rebasing relief – the conditions
This attractive relief may apply where the following conditions are satisfied:
- The taxpayer is an individual – as such, assets held by trusts or companies cannot benefit from the uplift in the base cost;
- He or she must become deemed dom on 6 April
- The assets in question must be directly held foreign assets
- Assets must have been held for the period from 16 March 2016 to 6 April 2017
- The taxpayer must have elected for the remittance basis to apply in any year up to and including 2016/17.
It is worth pointing that rebasing applies on an asset by asset basis – in other words, one can pick and choose to which assets you want the relief to apply.
On sale, where rebasing has been applied, the funds do not have to remain outside the UK. However, care must be taken if the original asset was bought with non-clean capital as this may lead to a remittance when those funds are brought to the UK.
Clearly this offers an attractive opportunity to ‘wash out’ historic capital gains where the conditions are satisfied.
The first step is clearly to ascertain whether rebasing applies to particular assets. If it does then one may seek to take advantage of it.
For some clients, it might be attractive to elect for the remittance basis to apply in 2016/17 (ie where they have not availed themselves of it in the past) in order to benefit from the relief.
In other cases, where the relief is not available, one might look at crystallising a friendly sale. In other words, taking advantage of an informal version of rebasing.
The key is understanding where one stands as soon as possible. This will allow one to act before the new rules come in to force if required.
If you or your clients have any queries about rebasing relief or any other element of the non dom tax changes then please get in touch.