I am about to pay UK tax on worldwide income and gains for the first time — and my UK residential property might be newly exposed to IHT both during my lifetime and when I die — what should I do now?
Proposed new rules introducing fundamental changes to the way UK resident non-UK domiciled individuals (non-doms) will be taxed in the UK, have been announced with effect from 5 April 2017. Many non-doms would wish to implement changes in their financial affairs before 5 April 2017 to prepare for the new rules.
However there is an awkward period of uncertainty whilst HMRC try to guide the Government through the tricky process of drafting the new tax law and prepare guidance to explain how the rules should work in practice. This is awkward because experience tells us that we may not have final legislation until close to 5 April 2017 and we may not have access to guidance until after that date.
Today’s dilemma for a non-dom is — do I wait until the proposed new rules are clear and final — or do I act now? To answer that properly, each non-dom needs to weigh up the risk of making changes that may eventually turn out to have a higher cost than was initially anticipated against the risk of running out of time to make changes that, if implemented earlier, would have been commercially desirable.
Identifying and confirming short, medium and long term commercial and family objectives is key. This often involves multigenerational aspirations as parts of the family approach retirement and the next generation come of age. There may be a wide range of assets (such as property, businesses, bonds and other investments, antiques, yachts etc.), located in various countries each with different funding arrangements. Usually asset protection, growth and cash flow requirements all need to be balanced.
It takes time to identify and decide upon a suitable strategy and then, for more complex situations, it may take several months to implement a chosen plan. The tax impact is just one element of this equation, but once clear commercial and family objectives have been confirmed, appropriate action becomes easier despite the uncertainties of changing tax rules.
Some issues being considered by non-doms include:
We are finding it is best to start now to work out what is at stake, to prepare a plan and to work out when the decision to implement it would have to be taken for completion by 5 April 2017.
Following the surprise Brexit result, there is no information currently available on whether these changes will still go ahead. However, some non-doms are finding that, because of their own circumstances and objectives, there is enough information to act immediately. Others are pleased to obtain a better understanding of the risks of action versus inaction, and to establish the date when they would need to decide to commence implementation.
For further information see our non-dom page
Mike Walker. Partner, Private Client
Daniel Crowther. Partner, Private Client