Offshore
UK Presses On With Non-Dom Rule Changes - Lawyers React

Lawyers comment on news that the UK government intends to press ahead with changes to the non-dom system.
Private client advisors are breathing a sigh of relief but remain
cautious as the UK government announced it will push on with a
fresh round of changes to the country’s embattled non-domicile
system.
Changes to the non-dom system - such as ending the ability to
enjoy such status permanently - had been slated to kick in
earlier this year but the decision by Prime Minister Theresa May
to call a snap election for 8 June derailed the legislative
timetable. With the election over (robbing May’s Conservative
Party of a parliamentary majority), the intention is to go ahead
with the non-dom changes.
The UK Treasury intends to push the Finance Bill through
Parliament quickly after the summer recess. Changes to the
non-dom rules and residential property tax will have effect from
6 April 2017, which means they will be backdated, lawyers
said.
Under the changes, a person who has lived in the UK for 15 out of
the last 20 years is deemed “domiciled” for UK tax purposes.
Previously, a person could be deemed a non-dom permanently,
avoiding paying tax on worldwide income so long as it was not
brought into the country. This, and other aspects of tax of high
net worth individuals in such a status has become a hot political
issue. Successive Conservative, coalition and Labour
administrations in the UK have chipped away at the UK’s non-dom
system, introducing an annual levy to be paid by non-doms, rising
depending on their length of time in the UK, if they want to
avoid paying tax on worldwide income. Wealth management advisors
have told this publication they consider such changes, coupled
with removals/reductions in reliefs on property owned by
foreigners, as more serious headwinds than the UK’s vote to leave
the European Union last year.
Lawyers say the new legislation will change how “formerly
domiciled residents” are taxed: those who were originally UK
domiciled but moved abroad to make their permanent home in
another country and are UK resident in the short term, such as a
work secondment.
Another change in legislation relates to inheritance tax.
Previously, UK residential property held through a non-UK
corporate entity owned by a non-dom or certain types of trust was
formerly protected from inheritance tax but this stops from 6
April 2017. Shares are now to be treated as UK inheritance
taxable assets, as will loans and security for loans used to buy
UK residential property.
“We are very glad to finally have some clarity after three months
of uncertainty as to whether, when and in what form the changes
to the taxation of long-term UK resident non-doms and taxation of
UK residential property would be reintroduced,” Alex Ruffel,
partner and tax expert at Irwin
Mitchell Private Wealth, said.
“The backdating of the effect of the new legislation to 6th April
2017 will be welcomed by non-doms who took steps to utilise
rebasing relief and plan for the mixed fund rules in reliance
upon the original Finance Bill. However, there may be
others who acted in reliance upon the current law who will face
tax liabilities as a result,” Ruffel continued.
He added: “There are also some interesting practical questions.
For example, if a trust appointed shares in a non-UK company
owning UK residential property on 7 April 2017 will they have any
leeway on time limits for submission of an inheritance tax
account, given that it was not clear whether one was needed until
over three months later?”
Simon Gorbutt, senior wealth planner at Lombard
International Assurance, said: “The announcement brings to an
end a lengthy period of uncertainty for non-domiciled clients
many of whom will have been unclear as to their domicile status,
the status, for tax purposes, of their foreign wealth and the
treatment of any foreign trusts and property holding structures
they had retained.”
“It confirms that, for those who are deemed domiciled under the
current draft of the rules, there is no intention to allow a
further year in respect of which the remittance basis can be
claimed. Instead, alternative long-term deferral solutions must
be found. The development is also likely to allow many clients,
who had begun to restructure their wealth in reliance on the
proposed rules, to continue with their plans,” he added.