GUEST ARTICLE: Non-Doms And The Brexit Dimension
The UK government has significantly changed the operation of the non-domicile rules. The Brexit vote also changes the equation yet further. This article explores the state of play.
As readers will have seen recently here in commentary from experts, the UK has changed how the non-domiciled residency system works, with profound implications for the wealth management businesses that have served this population segment. Another dimension of debate is how the UK’s vote to leave the European Union affects the picture. With this in mind, Simon Baylis, a partner in the Moore Stephens private client services team in the UK, takes a closer look at how these issues intersect. As ever, editors of this publication welcome readers’ responses and don’t necessarily endorse all views expressed from guest contributors.
The recent Brexit vote, as well as the changes in their tax status announced in the 2015 Summer Budget, has caused many non-doms to question whether or not they wish to leave the UK. If this really were to UK economy, UK and UK property would be negatively impacted – but what will be the extent of the detrimental effect?
Changes to the tax status of UK non-doms
As has been reported, the government announced its intention to change the tax treatment of non-UK domiciliaries (non-doms) in the summer budget of 2015. A process of consultation on those changes has been ongoing. We have been provided with draft legislation on the new definition of non-UK domicile, but the details of some of the reforms had been withheld until the publication of a consultation document that was issued on 19 August 2016.
There are still some areas where more information is required, and the details are not finalised, but we do, at last, have a better sense of what the post-6 April 2017 regime will look like.
The changes include:
-- a new concept of deemed UK domicile for those who have been UK resident for more than 15 out of the previous 20 years which applies to all direct taxes;
-- transitional provisions which allow a tax-free rebasing of foreign assets in certain circumstances, as well as a limited ability to unravel historic funds held overseas which could otherwise not be remitted to the UK without a tax charge;
-- changing the treatment of offshore structures such as trusts settled by and overseas companies where held by deemed UK domiciliaries. These measures are likely to be subject to further change;
-- subjecting UK residential property to inheritance tax where it is held through offshore structures, even where the beneficial owner is not resident in the UK.
The next likely point when an update can be expected is 5 December 2016, on publication of the draft 2017 Finance Bill. However, the rules may still then be subject to change and this will leave affected individuals and structures very little time to plan what action to take before 5 April 2017.