The government has announced that the reforms to the taxation of "non-doms" will go ahead with effect from 6 April 2017 as originally planned. These measures were unexpectedly removed from the Finance Bill before the election but will be reintroduced in a new Finance Bill after Parliament returns from its summer recess on 5 September. Meanwhile, the government has released revised draft wording which confirm that the measures will proceed largely in the same form as before with a few minor, technical amendments.
This means that UK residential property held via an offshore close company or partnership and loans made to acquire, enhance or maintain UK residential property have been within the UK IHT net since 6 April 2017. When enacted later this Autumn, this will amount to retrospective legislation and it remains to be seen if the courts would uphold the validity of an IHT liability in relation to a ten year trust charge or on the estate of anyone who has died at some point between April and the new law being in place. It is hoped that these concerns will be addressed as the Bill progresses through Parliament.
To recap, the other key reforms taking effect from the start of the 2017/18 tax year are:
- Individuals will be deemed domiciled in the UK for income tax, CGT and IHT purposes once they have been UK resident for 15 out of the previous 20 tax years.
- Individuals who are now deemed domiciled in the UK will be eligible for rebasing, so that only the post-April 2017 portion of any gain arising on the sale of assets will be taxable.
- Mixed funds (including those arising pre-6 April 2008) can be separated into clean capital, income and gains which can be remitted separately) until 5 April 2019.
- Protections for trusts from IHT, CGT and income tax established prior to the settlor becoming deemed domiciled in the UK subject to certain conditions.
- Individuals who were born in and originally domiciled in the UK but subsequently obtained a domicile of choice elsewhere will be treated as UK domiciled once they become UK resident again, without the benefit of rebasing, mixed fund cleansing or trust protections.
- Introduction of new rules for valuing the provision of benefits (such as loans and use of chattels and property on favourable terms) from an offshore structure.
While this clarification is welcome, it should be remembered that until the legislation is actually enacted, there is always the possibility that some details could change further, particularly in the current political climate. Therefore it may be prudent to delay any substantive planning until the legislation is finally in place.