Non dom changes

21 July 2017

The government has indicated that certain changes to the taxation of non-UK domiciled individuals (“non-doms”) that were dropped from the first Finance Act 2017 in advance of the snap election earlier this year will be re-introduced in the Summer Finance Bill later this year.  The changes are to be made with retroactive effect from 6 April 2017, as was the original intention.  This comes as a relief to many non-doms, who undertook planning in advance of 6 April 2017 and had been faced with the prospect of their planning being rendered obsolete.
The announcement also puts an end to the bizarre scenario in which many long term UK residents have found themselves during the last few months of not knowing what tax regime applies to them in the current tax year.  Individuals born in the UK with a UK domicile of origin will be deemed domiciled (taxable on their worldwide income) for any year in which they are UK resident. Furthermore, any person who has been resident in the UK for at least 15 of the last 20 tax years will now have deemed-domiciled status.  Planning arrangements under the new rules, which are likely to have been put on hold while the position was uncertain, can now be picked back up.  These will include:

  • Cleansing of ‘mixed funds’, where a non-UK bank account contains a mixture of clean capital and untaxed income or gains.  The two year window has not been extended, so taxpayers still only have until 5 April 2019 to complete any cleansing arrangements, which now leaves less than two years;
  • Disposals of certain non-UK situs assets in cases where the taxpayer is eligible for rebasing at 5 April 2017;
  • Creation of protected settlements by long term UK residents who have not yet become deemed domiciled, in order to shelter foreign assets from UK inheritance tax.

The cleansing of mixed funds and rebasing of foreign assets are both potential new sources of clean capital for tax free remittance to the UK.  This is a welcome development for those with certain assets outside the UK that could previously only be remitted at a substantial tax cost.

The draft legislation is to be included in a second Finance Bill 2017 after the summer. There are only expected to be minor changes from the original Finance Bill, which would be to ensure the various clauses function retroactively as intended, but not to change their substance.