Non-UK Domiciliaries

Home- Year End Tax Planner 2019/20- Non-UK Domiciliaries

Foreign domiciliaries, sometimes referred to as Non-UK domiciliaries or more colloquially “non-doms”, will be burdened with having to consider a number of statutory changes. 

Regular readers of our updates will notice that the position is relatively unchanged. Due to the delay in the passing of the legislation following the snap general election in June 2017, implementation of part of the finance bill was postponed. This included all of the legislation affecting non-doms, and was finally passed into law in the Finance (No 2) Bill 2017 late in 2017. As expected the substantial changes are coming into effect retrospectively and apply from 6 April 2017 and many people will have acted in anticipation of these changes before the legislation’s postponement.

Although this detail falls outside the scope of this planner, it is important to seek advice and clarity even if the changes are unlikely to affect you or you have already acted in anticipation of the changes. Menzies have a team who specialise in providing bespoke tax advice to foreign domiciliaries and answering offshore queries. 

THE CHANGES 

UK deemed domicile for all tax purposes

Foreign domiciliaries will be deemed UK domiciled for Income Tax, CGT and IHT purposes once a UK tax resident for at least 15 out of the past 20 tax years.

Since the 6th April 2017, such individuals have been taxed on their worldwide income and capital gains on an arising basis. Unless suitable planning is undertaken, they will also be subject to UK IHT (currently set at 40%) on their worldwide assets. IHT protection will be available for trusts created by an individual before they become deemed UK domiciled.

Those who became deemed UK domiciled on or after the 6th April 2017 should speak with their Menzies contact to ensure that the necessary planning is put in place. This ranges from simple bank arrangements to complex offshore structures. 

The Returning Foreign Domiciliary (RFD) 

Any individual who has a UK domicile of origin and was born in the UK and subsequently acquired a foreign domicile of choice, will immediately be treated as being UK domiciled for tax purposes if they return to be a tax resident in the UK at any point. 

Foreign residents who originally had ties with the UK who wish to relocate to the UK, should carefully consider how these new rules will affect them as with arrangements that were established whilst they were not a UK tax resident. The risk is that one might accidentally become a UK tax resident and immediately fall within the scope of UK income tax, CGT and IHT. 

Rebasing of capital assets 

Capital gains realised after 6 April 2017 will enjoy freedom from CGT to the extent that the gain accrued before that date. This is achieved by the application of a rebasing election which will apply on an asset by asset basis. 

The relief will only be available to individuals personally owned assets which were held outside of the UK as at 16 March 2016 by those individuals who became deemed UK domiciled on 6 April 2017. 

UK residential property 

Legislative changes now provide that UK IHT will apply in relation to UK residential property in cases where it would previously have been protected. Examples include cases where the property is held through a non-UK corporate structure directly or as part of a structure headed by a trust. If you own UK residential property through a structure or not, you should seek advice in connection with the exposure to UK IHT options which could be available to reduce the burden. This also applies to the finance costs attributable to purchasing UK property. 

Your BrighterThinking Next Steps

“If you consider yourself a non-dom, ensure you have discussed with your tax advisor, and you have as much ammunition as possible, to defend your non-dom status in the event of a query from HMRC. Non-doms remain under the spotlight at HMRC, and specialist tax advice is critical.” 

Craig Hughes – Menzies Private Client Partner

Business Investment Relief (BIR)

BIR allows UK tax resident foreign domiciliaries to invest untaxed foreign income and gains in qualifying UK businesses without triggering a UK tax charge. From the 6th April 2017 the scope for relief has been widened, and its application less restrictive however rigid procedures must be followed for the relief to apply. 

Your BrighterThinking Next Steps

“The BIR remains a little known, but extremely tax efficient investment, for non-doms who want to remit funds to the UK without the Remittance Basis Charge. Specialist advice is essential.” 

Chris Gillman – Menzies Private Client Senior Manager

Offshore Trusts

UK resident settlors and or beneficiaries of foreign trusts should seek advice so as to clarify how the recent legislative changes will affect them, if they haven’t already. 

Your BrighterThinking Next Steps

“If you have an interest in a foreign trust, be it as a settlor, trustee or beneficiary, we would recommend you speak to your Menzies contact.” 

Russell Dickie – Menzies Private Client Senior Manager

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Menzies Private Client Team

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Personal tax planning can be complex. We would always recommend that you seek professional advice when undertaking a review to ensure all changes are processed and managed effectively. Please do speak with your Menzies contact who will be delighted to meet with you to discuss ideas, opportunities and the appropriate action.


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