Further consultation on tax rules for non-UK domiciled individuals (non-doms) which will impact both UK resident and non-UK resident individuals and their structures was published recently. From April 2017 UK residential properties owned through non-UK companies will be within the scope of UK inheritance tax (IHT). Long term UK resident non-doms will be taxed on worldwide income and gains as they arise (not the remittance basis) with both foreign and UK assets subject to IHT. There is a one year window from 6 April 2017 to tidy so called ‘mixed funds’. In certain circumstances, rebasing of foreign assets to market value on 5 April 2017 is possible and there are special tax rules for non-UK resident trusts established by non-dom settlors. Individuals with UK domicile of origin who were born in the UK, but left and acquired a domicile of choice elsewhere, will have UK domicile of origin for all tax purposes on their return.
The Government’s proposals will affect all UK resident but non-UK domiciled individuals and also non-UK residents holding UK residential property. All of the proposed changes are subject to a consultation period and could be further amended before being implemented.
UK resident non-doms have often found their offshore ‘clean’ capital trapped outside the UK by the application of the current remittance rules. The Government proposes a one year window from 6 April 2017 for the separation of the income, capital gains, and ‘clean’ capital elements of existing non-UK funds into separate accounts to manage future remittances to the UK. To use this facility individuals need to identify the different elements of an offshore account at 6 April 2017. KPMG Private Client can advise and assist with our Mixed Fund Analysis Tool.
From April 2017, any non-doms who have been a resident in the UK for more than 15 out of the past 20 tax years, will be deemed domiciled (DD) for all UK tax purposes. Individuals becoming DD in April 2017 should be able to rebase their foreign assets to market value on 5 April 2017. Special rules for non-UK resident trusts established by non-dom settlors will broadly allow for income and capital gains to roll up within such trusts without UK tax charges, so long as there are no additions to the trust, or the settlor and close family members do not receive any income or benefits from the trust.
Revived UK domicile of origin
Individuals with a UK domicile of origin and born in the UK, who have left the UK, will be treated as having a UK domicile for all tax purposes on their return. However, they will not be able to benefit from the rebasing, mixed funds reorganisation and special tax rules for trusts.
UK residential property
In the past non-UK resident individuals and UK resident non-doms (and their trusts) have been able to shield the value of UK residential property from IHT by holding property through a non-UK company. From April 2017 the UK scope of IHT is extended to all UK residential properties that are owned by non-doms, whether the non-doms and any companies that own the properties are resident in the UK or not.
If you are claiming the remittance basis or are a non-dom owning or seeking to acquire UK residential property, these changes could have an impact on you. It is time to take stock of offshore bank accounts and structures and have a clear understanding of the effect of the new rules.
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