If you have been following the debate about the
taxation of non-UK domiciliaries you might be
forgiven for thinking the UK government does
not want such individuals to stay in the UK.
From 6th April next year any non-UK domiciliary
who has been resident in the UK for at least 15
years out of the last 20 will be treated as
domiciled in the UK for all tax purposes. It has
been possible to become deemed domiciled in
the past due to lengthy residence in the UK but
only for inheritance tax purposes. However, all
is not doom and gloom. There are two measures
outlined in the government’s recent consultation
document which may ameliorate the impact of
the new rules in some cases.
The purpose of this note is not to give a detailed
briefing on these potential changes (because the
new rules have not yet been drafted in every case
and may yet change between now and becoming
law). The purpose is to make you aware of the
potential opportunities that lie in the rule changes.
If you will become deemed domiciled under the 15
out of 20 year rule next year any overseas assets
you hold on 6th April 2017 (and which were held on
held 8th July 2015) can be rebased for capital gains
tax purposes. This means that only gains arising
after 6 April 2017 will be taxed.
In some cases this may allow significant gains to
escape tax but please remember that if the original
investment was made using overseas income and
gains these may still be taxable when realised. In
addition, this relief does not extend to offshore
income gains – profits on offshore roll-up funds the
profits on which are subject to income tax rather
than capital gains tax. There will be no rebasing on
If you are not going to become deemed domiciled
next year because you have not yet hit your 15
years then some thought ought to be given to
realising gains on overseas assets before the rules
change, providing the level of gains justifies paying
any remittance basis charge.
If you have offshore accounts which contain funds
from different sources, some taxable and some not,
it can be very difficult to separate these so that you
can remit only the tax free element. It is normally
necessary to remit the taxable elements first.
There was a proposal to allow all non-UK
domiciliaries – not just those who become deemed
domiciled on 6th April next year – to separate the
constituent parts of these accounts during 2017/18,
but the government has now announced that this is
to be extended to include 2018/19 as well. If you can
identify the source of the funds in your account this
may allow you to separate clean capital which can
then be remitted tax free in the future.
This provision only applies to bank accounts. If you
have stocks and shares or other assets which were
bought using a mixture of capital and income these
can not be separated directly with this provision. In
these circumstances you could sell the investments
then separate the proceeds when they have been
banked. In some cases it may also be desirable to
sell the investments before 6th April 2017, unless
you can benefit from rebasing.
There may be nothing you can do to take advantage
of these measures but if you would like to discuss
them, or any of the other proposals in the
consultation document, please contact us.