Non Doms – a summary and update by Hazel Johnson, Associate Director, Private Client Tax, Moore Stephens London

The new rules for the taxation of non UK domiciliaries were promised to us well in advance of 6 April 2017 - the date from which they will apply - so that UK resident taxpayers would be able to plan for the transition to the new regime. Unfortunately, the draft legislation that we have seen has only dealt with the new rules on domicile themselves and not the new regime for offshore trusts or any transitional reliefs that may apply.

This places taxpayers and their advisers in a difficult position, and the change in Chancellor and the surprise Brexit vote surely means that these proposed changes will have fallen even further down the list of priorities facing the Treasury.

Under the new rules individuals who have been UK resident for more than 15 out of the 20 previous tax years will be deemed to be domiciled in the UK for all taxes from the beginning of year 16 (rather than the previous rule that applied after 17 out of 20 tax years which was limited to inheritance tax). Individuals born in the UK with a UK domicile of origin who leave the UK, even for very long periods of time, will be treated as UK domiciled if they again become resident in the UK. We have seen the draft legislation dealing with these changes, and the implications are well understood.

We are told that there will be transitional reliefs such as a rebasing of personally held assets for individuals who become deemed UK domiciled on 6 April 2017, that there may be reliefs on the winding up of house structures, there could be a softening of the rules for business investment relief, and there are suggestions that the mixed funds rules could be revisited and simplified. These would all be welcome things, but in the absence of the detail of the rules it is impossible to advise a client to rely on these potential reliefs when they may not be enacted, may not apply in particular circumstances, or where their introduction may be delayed to later years.

There has been very little guidance on the tax treatment of offshore trusts other than to say that there would be a benefit charge on beneficiaries, but that there should be no charge where income or capital gains are not distributed (other than UK source income which would be taxable on a settlor). This is potentially attractive, allowing for tax free roll up of investments in a trust structure, but this does depend on the rate applicable to taxable benefits - anything higher than capital gains tax rates will be disastrous.

There will be a period of adjustment whilst long term UK residents decide whether the new regime is unworkable for them, and the new statutory residence test will make it easier for people who wish to break residence to do so. Individuals who cannot break all ties with the U.K. may find that they can reduce their presence in the country to such an extent that they cease to be resident and this could see a substantial drop in the tax take from non UK domiciliaries.

This article was first published in Business Life Global, page 24: