Finance Bill Clauses Out: Non-Dom Changes In
July 14, 2017
As we anticipated in our last newsletter on the topic, it is now expected that changes to the taxation of UK resident non-domiciled individuals (RNDs) that were withdrawn from Finance Act 2017 will go ahead as originally planned and with an effective date of 6 April 2017.
What has happened?
Thursday saw the publication of updated draft clauses on the taxation of RNDs, for inclusion in a second Finance Bill later in the year. The changes are set to take substantially the same form as those removed in the wash-up process that preceded the General Election. The Government has said that “It expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions. Where policies have been announced as applying from the start of the 2017-18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained. Those affected by the provisions should continue to assume that they will apply as originally announced.” The summer recess runs from 20 July to 5 September (and the conference break from 14 September to 9 October).
The draft clauses confirm the intention to treat as UK domiciled for all tax purposes those who have been UK resident for 15 of the past 20 tax years and those born in the UK and returning with a foreign domicile of choice. 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.
While it had been rumored that provisions allowing for the capital gains tax rebasing of foreign assets would be removed, these have been preserved together with the option to cleanse mixed funds. The updated clauses also set out the continued intention to subject RNDs to inheritance tax in respect of indirectly-held UK residential property.
What does this mean for clients and advisers?
The announcement brings to an end a lengthy period of uncertainty for non-domiciled clients many of whom will have been unclear as to their domicile status, the status, for tax purposes, of their foreign wealth and the treatment of any foreign trusts and property holding structures they had retained. It confirms that, for those who are deemed domiciled under the current draft of the rules, there is no intention to allow a further year in respect of which the remittance basis can be claimed. Instead, alternative long-term deferral solutions must be found. The development is also likely to allow many clients, who had begun to restructure their wealth in reliance on the proposed rules, to continue with their plans.
Why life assurance?
For clients who became deemed domiciled on 6 April 2017 and for RNDs as a whole, life assurance continues to be an attractive solution not least in terms of preserving existing or new clean capital, allowing exposure to a breadth of asset classes in the UK and elsewhere and permitting tax-efficient access to sums invested. Whether alone or in conjunction with existing structures, life assurance can continue to offer long-term tax deferral without recourse to the remittance basis and despite a loss of non-domicile status, while remaining flexible and portable to other jurisdictions.
For further information, please contact your usual Lombard International Assurance representative.
By Simon Gorbutt