Update 30 October 2024 – Following the Budget announcement today, some of the details mentioned in this insight may have changed. Please visit our Budget page for further information.
After being withdrawn from the Finance Bill in April 2017, legislation proposing changes to the tax treatment of non-domiciled individuals has been reinstated in the Summer Finance Bill. Once passed as law, the legislation will take backdated effect from 6 April 2017, the original date that it was due to be implemented.
The most notable change is that individuals who have been resident in the UK for 15 or more years out of the last 20 will be treated as ‘deemed domiciled’ in the UK for tax purposes. This measure is expected to have a substantial impact on many high net worth individuals who need to know the impact of the changes and whether you can do anything to protect your position.
Review your domicile
If you haven’t reviewed your domicile recently you may be well advised to seek a review in order to clarify your domicile status under general law, as well as your deemed domicile status. If you aren’t domiciled under general law and you are not yet deemed domiciled in the UK under the new rules, you should take expert advice to protect your UK tax position for when you become deemed domiciled.
Make sure your historic tax affairs are in order
The Government is also introducing a tougher penalty regime for non-compliance regarding tax matters based outside of the UK. What is being referred to as the ‘requirement to correct’ provides individuals with inaccurate tax filings in relation to offshore matters – whether non-domiciled or not – a final chance to correct them before the stricter penalties come into play.
Taxpayers have until 30 September 2018 to put things right, after which point they may find themselves liable for a penalty of up to 200% of the tax due. There is very little leeway regarding this measure, so a full review is advised.
Consider rebasing assets
The news is not all bad. Those who became deemed domiciled under the new rules need to consider their overseas assets and whether they qualify for rebasing for capital gains tax (CGT) purposes. In some cases, CGT will only apply to gains that have arisen after 6 April 2017, meaning substantial tax savings could be available.
Separate, or ‘cleanse’, any mixed accounts
You may be able to mitigate the impact of the changes by separating any mixed accounts. Mixed accounts are accounts that contain funds from various sources, both taxable and non-taxable. For example, you may have a mixture of income, capital and gains in a single bank account.
There is a new provision which enables you to separate the components in a mixed bank account by transferring funds into new segregated accounts. This ensures that ‘clean’ capital doesn’t stay trapped behind taxable income and gains, meaning you are better placed to manage bringing funds to the UK. Individuals have until the end of the 2018/19 tax year to complete this.
Capitalise on Business Investment Relief (BIR)
You might want to consider whether you are eligible for Business Investment Relief (BIR). This is now an attractive proposition for many non-doms as it helps to protect income and gains that are held overseas but invested in the UK.
Under the BIR rules, funds must be invested (including loans) in an unlisted trading company. The ‘extraction of value’ rule needs to be kept in mind as, in short, it means that BIR is lost on the funds invested when any value is extracted from the BIR company. Regardless, this option still provides investors with the chance to invest in projects using funds that they would otherwise be unable to use in the UK.
Navigate the non-dom tax changes with Hillier Hopkins
If you are a deemed domicile under the new measures, you may need to act once the final form of the legislation is known. For expert assistance mitigating the impact of the changes, get in touch with a member of our team now or contact Ian Abrey.
This article is written for general interest only and is not a substitute for consulting the relevant legislation or taking professional advice. The authors and the firm cannot accept any responsibility for loss arising from any person acting or refraining from acting on the basis of the material included herein.