HMRC Clarifies some of the uncertainties facing Non-Doms
19 December 2016
The draft Finance Bill 2017 published this week resolves most of the uncertainties regarding the coming reforms to the non-dom tax rules.
An earlier suggestion by the UK's Treasury that offshore trusts would automatically become taxable in perpetuity if any benefits were received by the settlor or a close family member, has been dropped. Instead, the Finance Bill sets out a regime under which deemed-domicile beneficiaries of offshore trusts will be taxed on all benefits they receive to the extent that the benefits can be matched against trust income or gains. If a close family member of the settlor receives a benefit, the settlor will be taxed instead on matched trust income and gains.
It may therefore still be advantageous to set up an offshore trust before the rules come into effect on the 5th April 2017. This will be of particular relevance for individuals with assets or cash that are not required to fund day to day living expenses and can be set aside for future generations.
If structured correctly, any income or gains arising on such assets can be generated tax free and the assets can pass down to future beneficiaries free of UK inheritance tax.
The new deemed-domicile rule (under which a non-dom will perforce become domiciled after long-term residence in the UK) is included in the Bill unchanged from its original form, and although these new rules will be a major deterrent to non-doms thinking of returning to the UK for a few years, non-doms will however still be able to shelter their non-UK assets from inheritance tax provided they transfer the assets into trust before they become deemed domiciled. It appears that they will not pay capital gains tax on historic gains that accrued on non-UK assets acquired before they became deemed-domiciled; the value of those assets will rebased for CGT purposes to their April 2017 value.
The draft Finance Bill however makes it clear that there will be no 'de-enveloping' relief for non-doms who wish to transfer residential property currently held through an offshore company into their own names.
Holding the property through an 'envelope/company' is likely to attract extra tax charges so many of these will wish to transfer it into their own names when it becomes liable to UK inheritance tax. Individuals who might be affected should take advice now in order to ascertain what tax liabilities might arise and then weigh up the benefits of terminating existing structure against the upfront tax cost.