HM Treasury is proposing to implement substantial reforms to the taxation of non-UK domiciles prior to the new tax year on 6 April 2017. The principal provisions are as follows:
Deemed domicile: Individuals who have been resident in the UK for 15 of the past 20 years will be deemed UK domiciled for tax purposes. Children born in the UK to non-domiciled parents will have acquired deemed domicile by the age of 16.
Rebasing of foreign assets: Where the new rules lead an individual to become deemed domiciled on 6 April 2017 then, providing they were not born in the UK, there will be the opportunity to rebase any directly held foreign assets which are in the individual's direct ownership as at 8 July 2015, to their market value as at 5 April 2017.
Cleansing mixed funds: For a limited period between 6 April 2017 and 5 April 2018 all non-domiciled persons are permitted to 'cleanse' their offshore funds. Where funds in non-UK bank accounts contain a mixture of capital, income and / or gains these may be separated into their constituent parts, enabling the remittance of capital to the UK. This is restricted to non-doms who were not born in the UK or who have never previously claimed the remittance basis.
Capital Gains Tax: Section 86 of the TCGA 1992 will continue to protect settlors who become deemed domiciled, exempting them from taxation on capital gains arising to an offshore trust. This protection, which applies only where the trust was set up whilst they were non-deemed domiciled, will be removed if funds are added to the trust after they have become deemed domiciled or if the settlor, spouse, minor children or another relevant person receives any benefits from the trust. The settlor will then be taxed on all gains arising.
Inheritance Tax on UK residential property: It is proposed to remove UK residential properties held within an overseas structure from the current exclusion from the charge toIHT. It is probable that HM Land Registry rules will be amended preventing the sale of an indirectly held UK residential property until evidence is submitted of any outstanding IHT charge having been paid.
The consultation deadline for comments on these proposals was 20 October 2016 with legislation expected in December 2016 at the earliest. Much hasty activity is therefore expected in sorting out affected structures before the April deadline.