Income and Inheritance Tax Changes for Non-Doms
The UK government have introduced, and will be introducing, recent and forthcoming tax changes affecting “non-domiciles” (non-doms) in the UK. Your “domicile” isn’t generally based on being resident in a country in a tax year (“tax residence”), but instead is usually based on the country which your father considered his permanent home when you were born. It may have changed if you live in a different jurisdiction and you don’t intend to return.
There are particular tax rules for non-doms such as for income tax, Inheritance Tax benefits or quirks where a marriage is between a UK and a non-UK dom. Bearing in mind the recent changes it could be of benefit to you to ask us to review your domicile position, and in particular your UK IHT exposure and to see if planning could save your Estate IHT in future.
Deemed domicile rules – from April 2017
At present, non-UK doms have specific tax benefits, such as no liability to UK Inheritance Tax (IHT) on foreign assets. In some circumstances domicile can be changed, but in particular you should be aware that non-doms can become “deemed” domicile for IHT purposes if they have been UK resident for 17 of the last 20 tax years.
However, the recent UK Budget changed this “17/20” rule to “15/20” – so that from April 2017 non-doms can become UK deemed domiciled after only 15 years of being UK resident. The new rules also mean that a non-dom would need to become non-resident for at least five years before they could even begin to be considered as a non-dom again for IHT purposes (other factors will be relevant too). So this effectively “raises the bar” that much higher off the ground for long-term UK residents to shed their deemed domicile status and reduce their UK IHT exposure, and for UK domiciles to shed their IHT domicile.
If you have foreign assets that are at risk of being caught by UK IHT if you become deemed domiciled in the UK, then please speak to me about a special type of trust that may be suitable planning.
Inheritance Tax on UK residential properties held in offshore structures – from April 2017
The second major change in the Summer Budget was to change the IHT treatment of offshore trusts/structures for non-doms. From 6th April 2017 all UK residential property held directly or indirectly by non-UK domiciled individuals will be brought within IHT on death or lifetime transfer.
Currently, where a non-UK dom individual holds UK property personally the property is subject to IHT. But where the property is held by that person through a non-UK company, the shares in this company will not be situated in the UK for IHT purposes, so the underlying property is effectively removed from UK IHT. From April 2017 even these structures will find that any value represented by UK residential property will be subject to IHT. Please note this only affects UK residential property and does not for example catch UK commercial property or shares etc.
It has not been announced whether or not IHT would apply to Furnished Holiday Lets in the UK.
Remittance Basis Charge – from April 2015
I would also remind you of changes to the UK Remittance Basis Charge (RBC) previously announced. Non-doms who have foreign income/gains may be able to escape UK taxation on those sources if they opt to pay the annual RBC. Depending on how long you have been resident in the UK, the RBC is now:
- UK resident for 7 of last 9 years – £30,000 a year (unchanged)
- UK resident for 12 of last 14 years – £60,000 a year (up from £50,000)
- UK resident for 17 of 20 years – £90,000 a year (new charge)
At these levels you would need to have a substantial amount of foreign income or gains to make opting for the RBC worthwhile.
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