Non-dom tax changes will take effect from 6 April 2017

The government announced on 13 July that significant changes to the tax treatment of non-UK domiciliaries which were put on hold pending the general election will go ahead in a Finance Bill to be presented to parliament in the autumn. The announcements confirm that the changes will take effect from 6 April 2017 as originally intended. This ends months of uncertainty in relation to extensive draft legislation which was unexpectedly removed from the pre-election Finance Bill.

Revised draft legislation published last week substantially reflects the pre-election version. The new rules include:

• The extension of deemed domiciled status to apply for all tax purposes once an individual has been resident in 15 of the previous 20 tax years.
• A new deemed domiciled status for individuals who were born in the UK with a UK domicile of origin who subsequently acquired a domicile of choice elsewhere. Broadly, such individuals will be treated as UK domiciled for tax years in which they are resident in the UK. 
• A two-year window until 5 April 2019 during which non-UK domiciliaries can segregate mixed funds into their different elements, enabling them to identify clean capital which can be used in the UK without a tax charge.
• For those who will become deemed domiciled on 6 April 2017, the rebasing of directly-held foreign assets to their market value on 5 April 2017 for capital gains tax purposes.
• A limited "protected" tax status for non-UK resident trusts settled by non-UK domiciliaries prior to becoming UK deemed domiciled, subject to certain conditions. The benefits of protected status include the ability to roll up capital gains and non-UK source income within the trust free of tax pending the receipt of a benefit by the settlor or other beneficiaries.
• Reforms to the way benefits (such as the use of chattels, the occupation of property and the provision of loans on beneficial terms) provided to beneficiaries of non-UK trusts are valued.
• The removal of inheritance tax advantages associated with the use of corporate structures to hold UK residential property. The new rules, in essence, treat the interest in the holding entity as within the scope of inheritance tax even in the hands of a non-UK domiciliary. 
• Provisions designed to counter the use of loans to protect residential properties from inheritance tax.

It now seems likely that the changes will become law.  However, given the uncertain political climate, clients are advised to continue to exercise caution where possible until the Bill has completed its passage through parliament, which is expected to be in October/November.

Legislation to implement additional changes to the taxation of trusts (including certain anticipated anti-avoidance provisions) is expected in a later Finance Bill to take effect from 6 April 2018.

Please get in touch with your usual contact for advice on how these announcements affect you.