The dom/non-dom conundrum

Tax advisors are waiting (perhaps not quite with baited breath but certainly with some anticipation) for HMRC to announce what it intends to do around tax rules for res non-doms, particularly in relation to UK property.

Hazel Johnson, a consultant with Moore Stephens in London, was in Jersey recently to speak at the BL Jersey Trusts Conference. Speaking with Kevin Renshaw, from Equiom in the Isle of Man, Hazel related the upcoming changes to two preceding instances where rules had changed.

In 2008, she said, legislators introduced new rules with little notice. Advisors had to react quickly and tax plans were adapted in a few short weeks. This time around, HMRC is planning more changes, but advisors are in the dark, at the moment, as to what exactly those rules will look like.

Due to come into force in April 2017, we should see some indication given this summer, when the rules are published for consultation. As Hazel said, although we don’t know what changes are coming exactly, we can start to prepare. Advisors can start reviewing structures now, looking at permutations and establishing where new tax liabilities will lie. By doing this preparation work we can get ready for any announcement and put new plans into place swiftly without the need to rush – a well prepared plan is always going to result in fewer mistakes and a better overall outcome for clients.

So how will the new rules impact clients? The biggest potential changes are in the assigning of domicile. HMRC has indicated that this is an area that it will target – particularly res non-doms. Hazel outlined that it will become more and more necessary for clients to tell a ‘story’ – to have compelling reasons for maintaining one domicile status or another.

Changes to inheritance and property taxes, ATED charges and other rules will mean the common practise of owning property via a trust, either to maintain it for the use of multiple members of a family, or to keep the ultimate owner private, will become trickier. HMRC already collects the ATED charge, but in addition will likely be seeking to ensure other tax is payable. It may be that clients look to ‘de-envelope’ their property – however that process can sometimes be too much of a financial penalty.

It is a conundrum that clients and advisors will need to get to grips with soon.