For many years non-domicile (“non-dom”) individuals, i.e. those resident in the UK but who have a domicile of origin or acquired a domicile of choice elsewhere, have enjoyed many benefits under the UK tax system. However, in 2015 the Government announced its intention to reform the non-dom regime, through consultation, with the objective of creating a “fair and competitive tax regime”. The outcome of such consultations are now only coming into force.
In July, the government confirmed that all of the provisions for the taxation of non-doms, which were dropped at short notice from the Finance Bill 2017 due to the impending General Election, will be introduced with retrospective effect from 6 April 2017. Whilst the legislation still requires Royal Assent, this provides much needed certainty which has been lacking since the General Election was announced.
It means that individuals who have been resident in the UK in 15 out of the previous 20 years will be deemed to be UK domiciled deemed-dom for all UK taxes - income tax, capital gains tax and inheritance tax.
Non-dom individuals with less than £2,000 of unremitted income and gains will continue to be automatically entitled to the remittance basis of taxation even once they are ‘deemed-dom’.
Capital gains tax rebasing will be available to individuals becoming ‘deemed-dom’ and who have paid the remittance basis charge at least once in an earlier year.
The asset being rebased must have been owned by the individual on 5 April 2017 and must not have been situated in the UK during the period from 16 March 2016 to 5 April 2017. There appears to be no requirement that the individual owned the asset throughout this period.
The rebasing will apply automatically to qualifying assets sold by a qualifying individual on or after 6 April 2017, although an application may be made not to rebase the asset if, for example, it had depreciated in value.
In addition, the protections in respect of capital gains tax and income tax will continue to apply to all foreign settlor-interested trusts set up by non-dom individuals. These protections will continue to make non-resident trusts very attractive for all non-doms, including those who have been in the UK for only a few years, as income and gains may be rolled up in such trusts without the need to claim the remittance basis and pay the associated charge.
Individuals who were born in the UK but who later move abroad and acquire a domicile of choice will be treated as domiciled in the UK as soon as they become resident on any return to the country. Trusts created by a “returning non-dom” will be treated as if created by a UK domiciled person.
Those who may be affected by these rules should take advice immediately as their tax position may change significantly and they will not benefit from some of the reliefs available for those becoming deemed domiciled under the long-term non-dom rules.
Stuart Gartery, Manager, Personal Tax