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.
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Millions of people from across the UK could be paying more tax than they need to, it has emerged, after figures from HM Revenue & Customs (HMRC) showed that more than 15 million individuals have not checked their Personal Tax Accounts.
The figure means that less than half of taxpayers have accessed their accounts, risking errors in the amount they pay.
Personal Tax Accounts were introduced by the Revenue in 2015 and include details of income, state pension records and National Insurance contributions.
They were intended to make taxpayers responsible for ensuring they are on the correct tax code.
Personal Tax Accounts can be accessed at gov.uk/personal-tax-account. Registration requires your name, an email address and a password. This will generate a 12-digit Government Gateway ID which will be needed in future when you log in.
You will also need to enter a phone number to generate a separate access code, which will be sent by text or automated call.
To access your account, you will be asked to enter information from a passport, payslip or P60 as well as to answer some security questions.
Under the income section, you will find information on your tax code, including deductions made by HMRC.
It is worth checking your Personal Tax Account as soon as possible. Figures show that 6.7 million people paid the wrong amount of tax last year because their tax code was wrong.