Deadline: April 2017 - ACT NOW
In the 2015 Summer Budget the former Chancellor of the Exchequer, George Osborne, announced reforms to the rules regarding the taxation of people who hold UK non-domiciled status ('non-doms').
New UK Tax Rules
Most of the upcoming changes will affect those non-doms who have been living in the UK, but UK expatriates will also be affected and some tax planning may be necessary.
As from April 2017, any individuals who have been UK tax resident for at least 15 of the past 20 years will now be deemed UK domiciled for tax purposes. This means that they will no longer be eligible for the remittance basis of tax and will be subject to UK tax on their worldwide income and capital gains, as well as having their worldwide estate become liable to UK Inheritance Tax (IHT).
Furthermore, the new rules will also ensure that individuals who were born in the UK and who were UK domiciled at birth but have acquired a domicile of choice elsewhere will be automatically deemed-domiciled if they subsequently return to the UK, with the implications potentially being quite severe especially if they have set up any foreign structures while abroad.
Under the new rules, once a non-dom becomes deemed-domiciled, it will no longer be relevant whether a benefit is received in the UK or overseas; the value of that benefit will be treated as taxable regardless.
There is, however, still time to plan before these changes come into effect on 6th April 2017. Significantly, it may be possible for non-doms to establish an overseas trust to hold UK residential property before this date and thereby keep this property outside the scope of IHT. By this means, the property will continue to be protected from IHT even after the settlor becomes deemed-domiciled. It is, therefore, imperative that non-doms act now and seek advice in order to safeguard their assets for the future.
What Should You Do Now?
If you consider yourself to be UK non-domiciled and have claimed the remittance basis of tax in the past, the upcoming changes which are set to come into effect in April 2017 could affect you immediately. As such, it is recommended that professional advice be sought immediately in order to review your affairs, identify your options moving forwards and avoid leaving planning for the upcoming changes until the last minute so as to ensure that no unexpected issues arise.
Review your Affairs
In the window of opportunity before the new rules come into effect in April 2017, it is important to review your residency and domicile status, consider whether your assets held in existing trusts are protected following the introduction of the new rules, review how your UK residential property held by offshore structures will be affected by changes to UK IHT rules, and identify if existing plans for your estate on death remain effective.
Identify your Options
There are a number of actions which may be applicable to your situation and it would therefore be prudent to consider which of these may be most appropriate in advance of the April 2017 deadline. Potential courses of action include: establishing a trust to hold assets which are currently held within an overseas company; using a QNUPS as an IHT vehicle; or considering residency in an alternative jurisdiction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.