Non-Dom Changes: Second Finance Bill published
September 08, 2017
This year's second Finance Bill, also referred to as Finance Bill 2017-2019, had its first reading in the House of Commons on 6 September and the text was published on Friday 8 September.
The Bill delivers further certainty around the rules affecting the taxation of resident non-domiciliaries (RNDs) and, as expected, contains the bulk of the provisions that were dropped from Finance Act 2017. It also contains further clauses, which were included in earlier consultations but not published in this July’s draft (see our report here).
The Bill has begun its passage through the remaining stages prior to enactment although, given that Parliament will be in recess again from 14 September until 9 October, it is unlikely that the legislation will be in force before the latter part of next month. Nevertheless, the clauses in their final form are due to have retrospective effect, from 6 April 2017. Individuals planning, or in the midst of, transactions affecting their non-UK wealth can now afford to be more confident that those arrangements will be effective. Clients who had already acted prior the General Election are also likely to be more at ease.
The rules, now familiar to most advisers, provide that RNDs who have been UK resident for 15 of the past 20 tax years will be treated as ‘deemed domiciled’ in the UK for all tax purposes. The Bill also confirms that those individuals born in the UK, and returning with a foreign domicile of choice, will also be treated as ‘deemed domiciled’ in the UK for all tax purposes. RNDs who establish foreign trusts, before acquiring UK deemed domicile, are to be protected from tax on certain income and gains arising to trustees until a benefit is received.
The Bill also sets out the provisions allowing for the capital gains tax rebasing of foreign assets, together with the option to cleanse mixed funds. Additionally, it confirms that non-domiciliaries should be subject to inheritance tax in respect of indirectly-held UK residential property.
Personal Portfolio Bond Rules
Clauses have also been incorporated to allow Treasury to amend, by regulation, the categories of property that a UK resident policyholder may select, without triggering the personal portfolio bond anti-avoidance rules. Importantly, these affirm that any removal of property categories will require the affirmative procedure of the House of Commons by statutory instrument.
Taxation of Part Surrenders
Additionally, the draft legislation allows a UK taxpayer to request the tax authority to review a gain, calculated as arising on a part surrender or assignment, on a just and reasonable basis in circumstances where the gain is wholly disproportionate. We first commented on the latter two changes here.
Against this background, UK-compliant life assurance remains a valuable wealth planning option, capable of delivering long-term tax, investment and succession advantages to UK resident domiciliaries, and to RNDs whether or not they are affected by the new rules.
If you have any questions or require more information, please contact your usual Lombard International Assurance representative.
By Simon Gorbutt and Lana Corrienne Mallon, Senior Wealth Planner, UK