Important tax changes for non-doms
Significant changes affecting the UK tax status of non-domiciled individuals (non-doms) take effect on 6 April 2017 – and have far-reaching consequences for the majority of those who have previously enjoyed the tax breaks associated with non-dom status, regardless of whether they were initially born overseas or in the UK.
The remittance basis and the new 15/20-year rule
Under the new changes, non-domiciled individuals who have been a resident in the UK for 15 of the past 20 financial years will now be considered domiciled in the UK for all associated tax purposes, regardless of when they arrived.
This legislative change, known as ‘the 15/20-year rule’ effectively means that such individuals will no longer be entitled to claim the remittance basis for Income Tax or Capital Gains Tax (CGT) purposes. This means that those affected will be subject to UK tax on their worldwide income and gains.
Furthermore, for those who previously had a domicile of origin in the UK and later moved abroad, thus acquiring a domicile elsewhere, their UK domiciled status will be immediately reinstated if they return to the UK.
Non-doms’ residential property subject to UK Inheritance Tax
As of 6 April 2017, non-doms who hold UK residential property indirectly through an overseas intermediary, such as an offshore trust, will see such properties subject to UK Inheritance Tax (IHT).
Previously, residential property held in such structures would be overlooked as ‘excluded’, but under the new rules, such property – however held – will be within the scope of IHT. This means that UK IHT will be payable upon any significant IHT event, including a death, gift or ten year anniversary of a trust.
Grace period for ‘mixed funds’
Non-doms with offshore funds made up of untaxed foreign income and gains will be granted a grace period of two years from April 2017’ to rearrange these mixed funds, sell any assets and separate any funds into their constituent parts of foreign income, foreign gains and clean capital. The latter can then be remitted from their segregated clean capital account in line with previous rules.
This gives an opportunity for people to reorganise their affairs to benefit more from the remittance basis where this is still available, or where it has been used previously, as those old unremitted monies remain liable to UK tax under the remittance basis, even if they are now subject to tax on an arising basis.
Under these rules, excluded property trusts can be used as an important planning tool as they will remain an effective way of sheltering assets from UK Inheritance Tax before an individual becomes domicile.
This will also apply to those who are newly ‘deemed domiciled’ under the 15/20-year rule.
If you are concerned that these important changes to the taxation of non-doms are likely to affect you, please contact us. If you are able to get in touch sooner rather than later, our experts can determine the wider implications of these tax changes, how you will be personally affected and how we might be able to help you to mitigate any potentially heavy tax charges.
Request a callback
Self-employed workers in the UK have reported their struggles to acquire a mortgage, after HM Revenue & Customs (HMRC) changed the way it issues details of tax calculations and tax year overviews for submission with mortgage applications.
Until recently accountants and workers themselves have been able to obtain a paper copy of form SA302 that lenders require in order to complete the mortgage application process.
However, from 4 September 2017 HMRC has confirmed that it will no longer issue paper copies and will instead provide digital versions.
This will make the process of securing a mortgage more difficult for self-employed workers and may even further restrict the number of lenders that will offer a mortgage, with reports already coming in of lenders insisting on original paper copies rather than electronic printouts.
Self-employed individuals and their advisers will be required to supply the relevant year’s tax computation, printed from the adviser’s software, along with the tax year overview that advisers can print from HMRC’s online services website, in order to act as a self-serve SA302 that will satisfy lenders.
HMRC has already undertaken discussions with UK Finance, formerly the Council of Mortgage Lenders, about lenders’ requirements. However, the list of lenders who will accept self-serve SA302 forms omits some big high street names.
Many accountants are therefore reminding self-employed individuals to check their lender’s requirements early on in the mortgage application process.
LINK: SA302 Tax Calculation