Taxation of non doms – still no certainty?

Andrew Cockman Andrew Cockman

There are huge changes to the taxation of non-UK domiciled individuals (non doms) on the horizon.

The government announced and has been consulting on these changes since Summer Budget 2015 and they are due to take effect from 6 April 2017.

On Monday 5 December the government released some draft clauses of the Finance Bill 2017 legislation, an event which was keenly anticipated by many non doms and their advisors.

Whilst the draft clauses have clarified the intended treatment of many areas of the tax law affecting non doms, sadly with less than four months to go before the rules come into effect there are still several areas where more clarity is needed.

What has been made clearer?

Draft legislation giving effect to the capital gains tax rebasing relief for foreign assets of non doms has been released. This is a welcome "softener" to ease the transition to the new harsher regime for existing long term resident non doms, and the provisions extend to more assets than had previously been suggested.

There are also some changes to make Business Investment Relief, which applies to prevent remittances by non doms to invest in "qualifying investments", more widely applicable.  Again this is welcome, although we think that these rules should be a target for wider reform if the government wishes to increase inward investment via the relief.

The capital gains tax treatment of offshore trusts established by non doms before the new rules apply to them has been largely clarified and so, even though the regime is likely to lead to larger tax bills for settlors of these trusts, at least taxpayers are now armed with information and can plan accordingly.

The inheritance tax treatment of ownership of UK residential property and related assets by non doms has also now been set out in the draft legislation. 

At first sight the rules appear very severe and in some circumstances could lead to tax charges on more than 100% of the property value.

Clarification needed

The major gap in the draft legislation released relates to the income tax treatment of settlors of offshore trusts. No legislation was released on these aspects and no timeline for its release was given save that it will be published no later than the date for the publication of the 2017 Finance Bill. 

Given that the Finance Bill is often published a matter of weeks before the new tax year begins, this delay is hard to fathom and very disappointing. Taxpayers and their advisors are being put in the position of having to understand and interpret complex legislation and its impact on their affairs in a matter of days, when the changes have been trailed and consulted on for around 18 months already.

The other area where much more clarity is required is the opportunity for non doms to "cleanse" their offshore mixed funds. The legislation was released on this but the mechanics of the cleansing process seem obscure to us and our view is that the Government will need to rework this or provide detailed guidance before taxpayers will be happy to utilise the relief.

Are you affected?

The above are just a few thoughts on where matters stand at present.  If you or your clients and contacts are affected by the changes, please contact Andrew Cockman.