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  • UNITED KINGDOM - Non-domicile taxation

07 June 2016

An update on the proposed changes

As announced in the Summer Budget 2015, from 6 April 2017 non-UK domiciled individuals (non-doms) will be deemed UK domiciled for all tax purposes after they have been UK resident for 15 of the past 20 tax years, bringing such individuals within the scope of world-wide taxation. Additionally, individuals who were born in the UK and who have a UK domicile of origin will revert to their UK domiciled status for tax purposes while resident in the UK.

The full breadth of the changes will be introduced in Finance Bill 2017, although the Treasury is expected to publish its response to the September 2015 consultation document before the Parliamentary summer recess, with draft legislation to be issued later this year. The Chancellor confirmed, however, that non-doms who establish a non-UK resident trust before becoming deemed domiciled in the UK under the new rules will not be taxed on foreign income and gains (including UK gains) retained in the trust. This follows the proposal for such trusts to have so-called ‘grandfathered’ protected status, as promised by the Conservatives in the build-up to the 2015 General Election.

In a surprise announcement, it was confirmed that non-doms who become deemed-domiciled on 6 April 2017 can treat the cost of their non-UK based assets as being the market value of that asset on 6 April 2017. Furthermore, a transitional provision with regard to offshore mixed funds will be announced to provide certainty on how amounts remitted to the UK will be taxed. The Government will also legislate to charge inheritance tax on all UK residential property indirectly held through an offshore structure from 6 April 2017, although no further announcements have been made at this stage.

Our comments

Non-doms should welcome these announcements, particularly because there will be limited opportunity to plan ahead of the introduction of the new rules being introduced from 6 April 2017 following the issue of Finance Bill 2017. However, it is noted that the automatic ‘uplift’ for CGT purposes for non-UK assets seems only to be proposed for individuals who will be treated as deemed-domiciled from 6 April 2017, so non-doms who have been resident in the UK for less time may need to retain original acquisition details and review their position carefully ahead of them becoming deemed domiciled. The position should be kept under review.

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