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The 'countdown' to non-dom tax reform is on

Monday 07 November 2016
The 'countdown' to non-dom tax reform is on

Representing the biggest reforms to taxation in a decade, and first announced in the Summer Budget of 2015, reforms to thetaxation of non-domiciliaries (“non-doms”) are due to come into force on 6 April 2017.

As recently as October, reports began to surface that the Treasury was in fact expected to ‘waterdown‘ its initial proposal to tax payouts to UK residents from offshore trusts. The thinking being that instead of taxing all the future gains of a trust following a payout, capital gains would be taxed when there was a payment to a UK resident.

There are even calls for elements of the bill to be put on hold until 2018 given the uncertainties implied by Brexit.

While we await the outcome of any review to the reforms, what do we need to know?

The overall message is that the UK government is seeking to reduce the tax advantages enjoyed by UK resident non-domiciled individuals, and those who will potentially be affected need to be aware of the changes and how they will impact their own UK tax position.

Key points:

  1. UK inheritance tax will apply to UK residential property irrespective of how it is held. Non-doms will no longer be able to mitigate inheritance tax on UK residential property through the use of an offshore company or a trust.
  2. The number of years it takes to become UK deemed domiciled for inheritance tax purposes is reducing. Currently you become deemed domiciled after being UK resident for 17 out of the past 20 tax years. That's now reducing to 15 out of 20 meaning it will be quicker to acquire and longer to lose your deemed domicile status.
  3. The concept of deemed domicile is extending to UK income tax and capital gains tax. This means permanent non-dom status is no longer possible.
  4. Individuals with a UK domicile of origin will automatically re-acquire their UK domicile when returning to the UK, regardless of the length of time previously spent in the UK.

Who is affected?

Any UK resident non-domiciled individuals.

Anyone approaching 15 years UK tax residency.

Individuals with a UK domicile of origin considering a move back to the UK.

Any individual who holds UK residential property through an offshore company or trust.

More information can be found here: https://www.gov.uk/government/consultations/reforms-to-the-taxation-of-non-domiciles/reforms-to-the-taxation-of-non-domiciles