Further clarification on non-dom reforms

On Friday 18th August, the UK HMRC released an updated consultation document (ow.ly/djyS303uZsr) which confirmed that the proposed changes to the taxation of non-dom individuals announced at the Summer Budget 2015 are going ahead.

The document confirmed that all UK residential property will fall within the scope of UK inheritance tax from 6 April 2017.

The government confirmed that it will treat any individual who has been resident in the UK for at least 15 of the past 20 tax years as deemed UK domiciled for tax purposes. Part years of residence will also count towards the 15 years.

Once deemed UK domiciled, an individual will no longer be able to use the remittance basis of taxation, nor rely on any other rules for people who are not domiciled in the UK. Their personal foreign and UK assets will be subject to inheritance tax (IHT). The government intends these new rules to take effect from April 2017. It means that those that have chosen to make the UK their long-term residence will pay tax on the same basis as current UK domiciles.

The proposals applying to individuals born in the UK with a UK domicile of origin is also going ahead. These individuals will be regarded as deemed domiciled for income and capital gains tax purposes for any year in which they are UK resident. For inheritance tax purposes, an individual will be treated as deemed domiciled where he was UK resident for at least one of the previous two tax years.

Excluded property trusts settled before the individual becomes deemed domiciled will be protected so that the income and gains can roll up tax free provided no benefits are taken from the trust. This is also an important opportunity for individuals who are about to become deemed domiciled to protect assets from inheritance tax.

Individuals who will become deemed domiciled from April 2017 should require professional tax advice on how the proposed changes will affect them so that appropriate tax arrangements can be made on a timely basis.

Any steps to establish an offshore trust in order to potentially benefit from tax savings must be taken before the new rules apply. In these circumstances, individuals with assets that can be set aside for future generations are recommended to take action now to establish their offshore structure.

If you would like to discuss either the proposed new rules for non-dom or any practical aspects of establishing an offshore trust structure feel free to contact us.

Kevin Loundes, Senior Tax Manager – kevin.loundes@abacusiom.com

Stewart Fleming, Director – stewart.fleming@abacusiom.com

Stephen Colderwood, Business Development Manager – stephen.colderwood@abacusiom.com

Written by Marta Bellamoli, Marketing Co-ordinator