To the surprise of many, George Osborne’s 2015 summer budget statement contained a proposal to review the way non-domiciled UK residents are taxed on their income.
For a while there was a lack of clarity over what was going to be included in the government’s draft legislation.
However following 2 government consultations we have a much clearer understanding about how the system will change at the beginning of the forthcoming tax year.
Here is a breakdown of what is likely to be a significant change in UK taxation.
How are non-doms taxed currently?
Like everyone else, non-doms pay tax on all income and capital gains made inside the UK.
However, non-doms are currently able to choose to pay tax under the remittance basis rules for income and capital gains made outside of the UK.
Under these rules, individuals give up their entitlement to the personal allowance and capital gains annual exemption in return for only paying tax on income remitted to the UK.
Over the past 8 years individuals who have been resident in the UK for a certain amount of time have had to pay charges in order to access the remittance basis regime.
A charge of £30,000 will apply to individuals who have lived in the UK for 7 of the last 9 years, £60,000 will be charged to those resident for 12 of the past 14 years. A £90,000 charge was recently introduced for UK residents for 17 of the past 20 years.
What’s changing?
Following the government response to the second consultation, we have a better understanding about how the rules will change.
Here are 3 key changes set to arrive in April 2017:
Long-term UK residents
The government proposes that individuals who have been resident in the UK for 15 of the past 20 years will be ‘deemed domiciled’ in the UK.
This status will end if the individual spends more than 4 consecutive years living outside the UK. Following consultation the government has confirmed that it will go ahead with this change.
Offshore funds
Some respondents argued that transitioning to these new rules would be problematic for individuals who are deemed UK domiciled from April 2017.
Many non-doms with offshore capital hold mixed funds that could expose some to unfair tax charges after they become deemed domiciled.
The government therefore announced that it would allow individuals to arrange and separate their overseas mixed funds during the course of the 2017/18 tax year.
Trusts
Osborne announced during the Summer Budget that newly-domiciled individuals will not face tax charges on income and gains originating from offshore trusts. However, from April 2017 non-doms will pay tax on benefits provided by an offshore trust.
Contact us
We can provide advice on how position yourself during the final months of the 2016/17 tax year.
Contact us on 01628 631 056 or email tracya@knightandcompany.co.uk to find out how the changes will affect your tax position.