UK government confirms non-dom reforms will happen in April
The UK government's previously announced reforms to taxation of resident non-domiciliaries will indeed go ahead in April 2017, it was confirmed in yesterday's Autumn Statement.
No further transitional concessions to help non-doms arrange their affairs in time were announced in the statement, despite appeals from professional advisors for relief from capital gains tax or stamp duty land tax for non-doms who elect to de-envelope their property structures.
Jonathan Conder TEP of Macfarlanes law firm says that given the considerable detail which underlies these proposals, it was hoped the government would announce more specifics on the practical implementation of the new regime. Furthermore, many feel that 'the government and taxpayers alike would have benefited by delaying the changes by a year or even six months’ says law firm Gowling WLG but these hopes have now been dashed, and the detailed legislation is expected to appear on 5 December.
Conder explains that the legislation will introduce a deemed-domicile status for various long-term non-doms or those that previously had a UK domicile of origin, resulting in many being taxed in the UK on their worldwide income. The introduction of the detailed legislation on 5 December 'leaves a very short window of time for affected UK resident individuals (non doms who will have been resident for more than 15 out of the last 20 tax years or who were born in the United Kingdom with a UK domicile of origin) to take any mitigating steps', says law firm Mc Dermott Will & Emery.
The legislation is also expected to charge inheritance tax on UK residential property held indirectly by a non-dom through an offshore structure, such as a company or a trust.
Matters still awaiting clarification include whether trust income and gains could be taxed when they arise, and not when they leave the trust; how 'mixed funds' can be segregated; and re-basing election on personally held assets held by persons who become deemed-domiciled in 2017, said tax expert Mark Davies.
However, there was confirmation that the concept of a 'protected' offshore trust will be introduced, which is a significant comfort, said James Quarmby TEP of Stephenson Harwood.
Moreover, the government has committed to amend the Business Investment Relief scheme rules to make it easier for non-doms claiming the remittance basis to bring offshore money into the UK to invest in UK businesses, starting in April 2017. Tina Riches of accountancy firm Smith & Williamson described this as a 'crumb of comfort', but said it was worrying that no further details have been issued yet. 'The government only received consultation responses on non-doms just a month ago, so how can it have had time to properly digest the responses?', she asked.
If changes proceed as planned, non-doms will have very little time 'to take advice, make decisions and take action before 5 April 2017, especially with Christmas and New Year holidays', said Karen Clark of chartered accountants RSM UK. 'There will be no one solution to fit every set of circumstances as much will depend on family and work circumstances, on the assets held and where, the need for access to the funds in the UK or overseas, the nationality of all family members, and many other factors, as well as length of UK residence'.
'It is disappointing that the government has not announced any safe route to de-envelope properties', commented Mark Davies. 'So there may be a significant tax bill to extract properties from offshore structures that will give few tax benefits from April 2017'.
- HM Treasury (Full statement, PDF file - see p37)
- Gowling WLG
- McDermott Will & Emery
- Mark Davies & Associates
- Stephenson Harwood
- Smith & Williamson
- RSM UK
STEP Response to consultation
On 20 October, STEP's UK Technical Committee published its response to the government's consultation Reforms to the taxation of non-domiciliaries. This further consultation related to trust protections for deemed UK domicile for long-term residents.
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