The package of documents published on HMRC’s website includes a further consultation round (the last was in September 2015), draft legislation and guidance notes, in respect of new rules which will:
- introduce a 15/ 20 years deemed domicile rule for both income tax and CGT;
- deem all non-doms born in the UK to be UK domiciled if they are UK resident;
- reduce the present inheritance tax deeming provision to 15/ 20 years, thereby aligning it with the new rule for income tax/ CGT; and
- extend IHT to all UK residential property regardless of the form of ownership.
A link to the proposals is set out below:
Further draft legislation will be released in due course.
Whilst much of the content of the above is as expected, the following are worthy of specific note.
- For inheritance tax, resident non-doms who were born in the UK will only be deemed UK-domiciled in a tax year if they have also been UK resident in at least one of the previous 2 tax years: short term visitors should therefore be unaffected by the deeming provisions.
- With effect from 6 April 2017, an offshore company or other entity, even if owned by a non-UK domiciliary (or by trustees of a trust created by a non-UK domiciliary) will no longer be “excluded property”, for IHT purposes, to the extent its value is attributable to a chargeable interest in land which has been a dwelling at some point in the previous 2 years. “Dwelling” for these purposes will have the same meaning as under the recently introduced non-resident CGT legislation.
- The Government proposes that loans from connected parties will be disregarded when determining the value of property chargeable to IHT under the new rules.
- A targeted anti-avoidance rule will be introduced to counter arrangements entered into for the purposes of securing a tax advantage in respect of the new provisions.
- To enable enforcement of the new provisions, it is proposed the property will not be able to be sold until any outstanding IHT liabilities which have arisen in respect of the property have been paid.
- The promised protection in respect of offshore trusts created by non-domiciliaries prior to the new deeming rules taking effect will only shelter future capital gains if no benefits are enjoyed from the trust in the future by the settlor/ his spouse or minor children. Income tax protection will still be available except to the extent of the value of benefits enjoyed.
- Re-basing to 6 April 2017 market-value will be available for those who:
- become deemed domiciled in April 2017 (but not in any later year); and
- have paid the remittance basis charge in at least one previous tax year.
The re-basing facility effectively creates a tax-free uplift to the April 2017 value, but any remittance of the proceeds of a future sale will be taxable to the extent that they contain or are derived from previously unremitted income or capital gains.
- For non-UK domiciliaries owning overseas mixed funds, a one-year window will be created (from April 2017) during which they can separate out mixed funds into their constituent parts (eg clean capital, relevant foreign income etc) such that the individual can choose the most tax-efficient order of eventual remittance. (Of course, income or capital gains arising from the point at which an individual becomes deemed domiciled will be taxable regardless of remittance.)
- The Government will consult on what changes may be needed to the Business Investment Relief (“BIR”) rules introduced in April 2012 to encourage more non-domiciliaries to invest their overseas wealth back into the UK.
Should you have any queries in relation to the above proposals, please contact either Gregory Jones or Darren Anton.