Draft UK Government proposals to extend capital gains tax to non-domicile assets held in non-UK trusts should be subject to an assessment of their impact because there are suggestions that it may lead to investments leaving the UK, STEP has told WealthBriefing.

Draft UK Government proposals to extend capital gains tax to non-domicile assets held in non-UK trusts should be subject to an assessment of their impact because there are suggestions that it may lead to investments leaving the UK, the Society of Trust and Estate Practitioners has told WealthBriefing. In the Pre-Budget Report 2007 the UK Government announced a range of changes to the regime for resident non-domiciled individuals. Proposals to extend CGT were mentioned in the PBR but until now there was no detail available. Industry bodies have subsequently been made aware that the proposal is to tax UK gains within trusts on an arising basis and foreign gains within trusts on a remittance basis. STEP director of Policy and Communications Keith Johnston told WealthBriefing: "Our members' non-dom clients are very concerned about the CGT charge on non-UK trust assets. This comes on top of the uncertainty caused by the non-creditable £30,000 levy. We believe that these measures taken together could lead to a flight of talent and investments out of the UK at a time of economic instability." Judith Ingham, chair of the STEP Technical Committee said: "The CGT proposals are a major policy change and should be accompanied by proper consultation and an economic impact assessment. Many non-doms have their investments held through non-UK trusts. If these proposals go ahead as planned, it is likely that the trustees will decide in the run up to April 2008 to dispose of their UK investments and instead to invest and transact their business offshore, simply because this will be so much more attractive in capital gains tax terms. This could have a very serious impact on the UK economy." STEP is seeking the support of industry and their members for a postponement of the CGT changes until the impact of the measures is properly assessed. The international organisation is also seeking a US-style statutory residence test to end uncertainty in that area.