UK: In The Spotlight - Highlighting Tax Issues Which May Affect You - Spring 2016

Last Updated: 24 March 2016
Article by Smith & Williamson

1. Income and capital gains tax changes for non-doms

Draft legislation and policy paper on non-doms

On 2 February 2016 the Government published proposed income tax and capital gains tax changes for non UK-domiciled individuals (non-doms) with draft legislation to be included in Finance Bill 2016.


Confirmation of deemed UK domicile test

Those claiming a domicile outside the UK will be deemed to be UK domiciled for income tax and capital gains tax purposes from 6 April 2017 if:

  • they were born in the UK with a UK domicile of origin and are resident in the UK in a particular tax year; or
  • they have been resident in the UK for at least 15 of the 20 tax years before the year in question

Settlor Rules

Settlors who settle trusts before becoming deemed UK domiciled will "not be taxed on trust income and gains that are retained in the trust". This may only apply to trusts settled by longer- term UK residents rather than trusts settled by those with a UK place of birth and domicile of origin. We await confirmation.


Some non-doms may wish to consider utilising the remittance basis in 2015/16 or 2016/17 and where possible rebasing offshore assets or restructure offshore holdings. Non-UK structures holding UK residential property should also be reviewed given that the inheritance tax protection currently provided is expected to be withdrawn.


We expect the new law will come into force from 6 April 2017.

The Proposals – further detail

UK domicile of origin

Those born in the UK with a UK domicile of origin will need to be non-UK resident for six complete tax years in addition to acquiring a domicile of choice overseas in order to lose their UK domicile. Their UK domicile will revive immediately on a resumption of residence in the UK.

Those with a UK domicile of origin who were born outside the UK, and have acquired a non-UK domicile of choice, will not be deemed to be UK domiciled until they have been UK resident for at least 15 out of the last 20 tax years.

Deemed UK domicile for long-term UK residents

15 out of the past 20 years

Any individual who has been UK resident for at least 15 of the previous 20 tax years (including arrival and departure split years) will be treated as UK domiciled for income tax, capital gains tax and inheritance tax. The £90,000 remittance basis charge will therefore disappear.


An individual who moved to the UK in, say, September 2002 would be deemed to be UK domiciled from the start of the 2017/18 tax year (i.e. from 6 April 2017).

Offshore trusts

In most cases, non-UK property in trusts established before a settlor becomes deemed UK domiciled will remain outside UK inheritance tax as 'excluded property'.

This may not apply if the settlor had a UK domicile of origin. Here, a trust could go from being fully outside the scope of UK inheritance tax on 5 April 2017 to being fully within it the following day. In some cases, it may be appropriate to make distributions prior to 6 April 2017 while these can still be made without inheritance tax applying, although income tax and capital gains tax need to be considered.

The rules for taxing income and gains within offshore trusts have yet to be confirmed, but the Government has said that settlors will not be taxed on income and gains that are retained in a trust. We await further details on how this will work and whether the existing rules will still apply in some cases.


Planning discussions are already in progress for many. Final decisions may turn on the publication of the remainder of the legislation which is expected later in 2016. Please speak to your usual Smith & Williamson contact to discuss further.

2. Buy-to-let tax relief changes for landlords

Tax relief on finance costs to be limited

Many landlords will no longer be able to claim the same relief on their finance costs as they do now. Instead, the relief will be limited to a tax credit at the basic rate of income tax. Much attention has been given to the fact that this will restrict the ability to offset mortgage interest against profits, but other finance costs, such as lending fees and early repayment charges will also be affected.

As the finance costs will no longer be deducted from the rental income, those affected will see their total taxable income increase. This could mean exposure to higher tax bands, higher levels of dividend tax, trigger a high income child benefit charge or even the loss of personal allowances, potentially turning a money-generating business into a cash-absorbing liability. The new rules, which are being phased in from 2017/18, are not due to apply to companies, so those with larger property portfolios may want to consider incorporation. Similarly, commercial properties are not affected, which may provide some opportunities for planning.

Buy-to-let landlords and second home owners face further squeezes

From 1 April 2016, the Chancellor intends to introduce higher rates of stamp duty land tax (SDLT) on the purchases of additional residential properties that cost more than £40,000. Rates will rise by 3 percentage points above current rates, increasing the SDLT on a £250,000 property from £2,500 to potentially £10,000. This will also affect those buying second homes as well as companies and institutions, which have previously been shielded from many of the changes. As currently drafted, the proposals may mean many property development businesses could face higher acquisition costs; however, discussions continue on whether and how any exemption from the extra charge can apply.

New rules for replacement expenditure and wear and tear

Currently, many landlords are allowed to deduct 10% of the rents less certain expenses to cover wear and tear, irrespective of what they spend. From April the wear and tear allowance will be abolished; instead relief can be claimed on the actual cost of replacing items. Many landlords could be worse off as a result.

3. Changes to taxation of savings and dividends

From 6 April 2016, far reaching changes to the taxation of savings and dividends will be introduced.


A new personal savings allowance will mean many individuals pay no tax on the first slice of their savings income. So, from 6 April 2016:

  • basic rate (20%) taxpayers will not pay tax on the first £1,000 of savings income;
  • higher rate (40%) taxpayers will not pay tax on the first £500; however,
  • most additional rate (45%) taxpayers will not qualify for an allowance.

Because so many people will no longer pay tax on their savings, any automatic deduction of 20% income tax from interest by banks and building societies will cease from April 2016.


The dividend tax credit will be abolished and replaced by a dividend tax allowance together with changes to the income tax rates applied to dividends above the allowance.

Currently, a 10% notional tax credit attaches to a dividend paid by UK and some non-UK companies. This reduces the effective rate of income tax on the dividend to 0% for a basic rate taxpayer, 25% for a higher rate tax payer and 30.56% for an additional rate taxpayer.

However, from 6 April 2016, a new dividend tax allowance will mean there is a zero rate of tax on the first £5,000 of dividend income a year. But anyone receiving dividend income in excess of £5,000 a year will see an increase in the rate of tax they pay on dividends above this threshold:

  • basic rate (20%) taxpayers will be taxed at 7.5%
  • higher rate (40%) taxpayers will be taxed at 32.5%
  • additional rate (45%) taxpayers will be taxed at 38.1%


Although income received as dividends and savings may be taxed at 0% under the new rules, the income will still count towards total income for other tax purposes, such as when assessing whether, for example, the high income child benefit charge applies.

4. Technical corner

4.1 Counting the costs of the recent bad weather

Farmers and landowners in flood hit areas are again counting the cost of the recent bad weather. For many, the financial cost of the damage will be covered by their commercial insurer. Depending on the circumstances, insurance compensation could be taxable as trading income or a capital disposal or part disposal. HMRC has announced it will allow certain leeway to flood victims, such as:

  • agreeing tax instalment arrangements
  • agreeing a practical approach when individuals and businesses have lost vital records in the floods
  • suspending debt collection proceedings
  • cancelling penalties when the taxpayer has missed statutory deadlines.

4.2 Inheritance tax penalties

Failure by personal representatives to report all relevant gifts made by the deceased in the seven years before their death, as a result of the recipient of the gift failing to inform the personal representative of any such gifts will now be considered primarily as deliberate behaviour under HMRC's new operational approach. As a consequence of this change of approach by HMRC, penalties between 50-100% of the tax undeclared could be levied upon the recipient of the gift. This therefore highlights the importance of good record keeping, ideally by both the donor and recipient, and appropriate reporting of any such gifts in order to avoid these penalties.

4.3 Pension legislation changes

There will be two major changes to pension legislation taking effect from 6 April 2016.

1. Annual allowance (the maximum you can contribute each year) - this will gradually reduce to £10,000 per annum from £40,000 per annum for those individuals whose 'adjusted income' exceeds £150,000.

2. Lifetime allowance (the maximum amount you can build up in pension funds) - this will reduce from £1.25m to £1m.

Protection will be available to those who have already built up pension funds close to or above the new limit.

Smith & Williamson LLP: Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International. The word partner is used to refer to a member of Smith & Williamson LLP

The Financial Conduct Authority does not regulate all of the services or products discussed in this publication.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions