The non-dom regime can prevent a non-UK domiciled individual’s overseas income and capital gains being subject to UK tax to the extent that amounts are not brought into (remitted to) the UK. The rules are complex, however, and careful thought is needed.
With a UK general election likely next year, there could be significant changes in public policy, not least tax. The non-dom regime has been under increasing public scrutiny and is likely to be a hot topic, with the main political parties having considered reform in recent years. Labour, for example, has already indicated that it would seek to reform the non-dom rules.
While the extent of any potential reform is not yet clear, we're recommending that individuals with significant links to the UK who currently are taxed under the existing non-domicile regime (such as those who rely on the remittance basis) review how they hold their assets and any family structures to put themselves in the position to consider the impact of any reform quickly.
Over the past 15 years there have been a number of significant changes to the non-dom rules which, alongside any evolution in the individual or family’s circumstances, may have changed how structures involving overseas trusts and companies are taxed. With significant reform to the UK tax system potentially on the horizon, consider reviewing current structures to ensure that they:
Similarly, reviewing bank account structures and personally held assets now to identify where non-dom status is relied upon for particular tax treatments will identify specific risk areas and where it would be prudent to take tax advice.
To make the right decisions on any changes to existing structures, it's essential for you and your advisers to understand the extent of the assets that are held, and ensure that accounts and tax pool computations are up to date. The consequences of any re-structuring can then be fully identified.
These tax calculations can be complicated with the information needed to prepare them often not being readily accessible. If tax pool computations are not up to date, now is the time to get this work done.
Depending on your circumstances and future plans it may be appropriate to accelerate certain taxable events, such as sales, distributions or gifts, or creating new overseas trusts while there is certainty around the tax rules that are in play. But...
The benefit of preparing for changes now is that it reduces the risk of rushing through a restructuring exercise only to find that ‘do nothing’ may have been the best option after all.
In some cases bringing forward income or gains will be the right thing to do. But it's worth noting that previous key reforms to the non-dom regime in 2008 and 2017 – under Labour and Conservative governments respectively – have included transitional rules and protections that ultimately produced a better result in some cases compared with those who took active steps to sell assets or receive income before the changes.
At this stage, where the nature of any potential reforms to the non-domicile regime is uncertain, our key message is to take the opportunity now to revisit your current structures. The aim should be to ensure that existing structures are fit for purpose and that you're in position to assess the impact of any policy changes quickly. Tax pool computations should be brought up to date and the current tax treatment of the structure confirmed.
Clearly the right actions before any potential reform will depend on you and your family’s own circumstances and future plans. There's no single solution that's right for everybody. Getting this preparatory work done now means you can consider any changes to the regime quickly and decide the best way forward.
