A further update on when we might hear more about the 2017 non-dom reforms. What can clients do in the meantime?
Our article of 5 July 2016 ("your guess is as good as mine") summarised our latest views on progress with the 2017 non-dom reforms; when we might expect to hear further; and whether they might be delayed (or shelved altogether).
This article is by way of brief update on the latest position and what clients might look at doing in what now looks likely to be a further delay of several months.
Parliament went into recess on 21 July and the expectation is now that we will not hear further on the proposed non-dom reforms until September.
The message coming from the government is that these reforms were very much George Osborne's project and, while the consultation document is drafted and ready-to-go, it would be inappropriate to issue it until the new Chancellor, Philip Hammond, has approved the position. Understandably, Philip Hammond does have several other important priorities – such as the state of the economy – to deal with at present.
The expectation, therefore, is that we will now not hear further until Parliament returns from recess on 5 September (and in practice probably not immediately on 5 September). We have been told that this purdah during Parliamentary-recess is not a hard-and-fast rule: it is simply that the relevant decision-makers tend to be on holiday or back in their constituencies. So it is possible that we might hear earlier than September. However, our expectation is that September is now the earliest we will hear and, according to some rumours, it may even be delayed until the Autumn Statement.
With this in mind, we update our FAQs below:
- Will we get more details soon?
As mentioned above, we now suspect that we won't hear until mid-September at the earliest.
- What detail could we expect?
We understand that the document is drafted and ready-to-go. We don't expect the delay to result in any significant amendments, improvements or further work on this. So, as before, we anticipate that the next publication will:
- contain a summary of responses to the previous consultation
- give an outline of the government’s thinking on residential property structures and, crucially, whether the government is minded to give a “de-enveloping relief”
- give more detail of the cryptic references earlier in the year to the re-basing of assets and transitional rules for “offshore funds”
- with regard to offshore trusts, confirm that the earlier “dry-benefits” proposal has now been shelved and confirm the broad outline of the revised proposals for offshore trusts.
We hope that the publication may include a skeleton of legislation, although we think that it is unlikely that this will be detailed.
We suspect that the revised trust proposals will not be as far advanced and will do little more than repeat what was said in informal meetings with professional bodies in April. One of the key problems with offshore trusts was making the legislation comply with European law (such as free movement of capital) and the extent to which those rules will continue to apply is obviously very much at the heart of the current Brexit debate.
- Will the legislation go ahead in 2017?
Since our previous bulletin, we now have a new Prime Minister and government in place – somewhat more quickly than we had anticipated.
Theresa May has specifically said that cracking down on "tax-avoidance" is one of her three key priorities. And, while the non-dom rules are not about tax avoidance, the likelihood is that the government views them in the same light.
We therefore think that it is now more likely than before that the proposals will go ahead and our best-guess is that this will be in April 2017.
In our view, however, this does rely on the consultation document being released in early September. If it is much later than that, our view is that they will have insufficient time properly to develop the legislation before April 2017. If this happens, we think that there is a fair chance that the main proposals (15 year rule; special rules for those with a UK domicile of origin) may proceed in April 2017, but that the technically more complex proposals (IHT on companies owning UK residential property; revised rules for trusts) might be delayed by a year.
There has been some talk of Philip Hammond wanting to look more fundamentally at the proposals, revisiting the overall rationale for them. If this is the case then there may be more chance of a delay.
- If the legislation is deferred, might it be shelved altogether?
We think it is now extremely unlikely that the legislation will be shelved altogether. All the noises coming from the new government are that they want to be a government "for everyone and not just the privileged few". It seems very unlikely that, given this rhetoric, there will be any relaxations for non-doms.
Even if Philip Hammond revisits the proposals entirely, we suspect that it will not be possible, politically, to shelve them altogether.
- Should I continue to delay or should I now take action?
With regard to residential property structures, our view remains that we already know enough about the shape of the new proposals, to advise on the best structure for the future. The only question has been whether to delay in the hope of a de-enveloping relief or to take action immediately (particularly as ATED continues to accrue on a daily basis). With the continued delay in issuing the consultation document we think that clients should proceed to start considering their restructuring options. It may be that this restructuring consists in getting all the documents in place ready to sign at short-notice, but leaving the actual implementation until later. We think it would be unwise, however, to delay much past September as it may then become too late to take action ahead of April 2017 if that is needed. We do not think that, even if there is a delay until 2018, that conclusion changes.
With regard to other planning, we do already have a fair idea of the likely proposals and solutions. So there is a good case for starting to plan now (but not implementing until we are clearer). The danger in further delay is that we do not hear until the Autumn Statement in December, by which time it may be too late both to plan and to implement.