The government has significantly amended the Finance Bill 2017, including removing all of the provisions effecting changes to the taxation of non-UK domiciled individuals and non-UK resident trusts.
Although this has caused some consternation among the non-dom community, the process of curtailing the Finance Bill (known as the "wash-up") is common before General Elections. The opposition largely has the whip-hand and only those measures of which the opposition entirely approves are passed. Anything else is left to a second, post-Election, Finance Bill.
Our message to clients who have implemented planning on the basis of the new rules (or are considering doing so) is "don’t panic". We still expect the changes to be implemented (broadly in the form published on 20 March).
While there has been some discussion about whether the changes will be delayed until 2018, our view is that this is wishful thinking and that, in all likelihood, the changes will take effect (backdated to 6 April 2017) as originally envisaged.
There is, of course, a risk that a different government might take a different view of the legislation, but in our view the bulk of the new rules are supported by both main parties. The opposition has delayed this to give itself more time to consider the position, but we think it is unlikely that a Labour or coalition government would wish to be seen as soft on non-doms by giving another year's grace.
What to do now?
In each case, advice should be taken as to the most appropriate course of action but it is worth noting the following:
- Although by no means ideal, it is not at all unusual for legislation to be in draft form on or after the date on which it supposedly takes effect. In almost every tax year, changes are made by a Finance Bill which only formally becomes law later in the year and is then "backdated" to the relevant 6 April.
- All else being equal, it is of course sensible to defer planning until the position has become clearer (particularly if the proposed planning involves rebasing assets to their 5 April 2017 values, or cleansing mixed funds).
- However, if planning has already been undertaken, or there are good reasons to implement planning now, it seems reasonable to assume that the draft legislation will be re-introduced after 8 June and will probably be enacted to take effect from 6 April 2017.
- The provisions relating to non-UK domiciled individuals and non-UK resident trusts are, in our view, likely to be broadly in the form published on 20 March 2017. Whilst there may be some additional amendments before they become law, those changes are unlikely to be significant and will hopefully focus on ambiguities and deficiencies in the existing drafting.
- For those who need to proceed urgently, the greatest uncertainties relate to the mixed funds rules and in particular:
- whether these will be extended to cover pre-2008 income and gains
- whether these will be extended to cover mixed funds held by relevant persons other than the tax payer
- the consequences of getting cleansing calculations wrong. For example, if you think that there is £100 of clean capital in a mixed fund and you extract that £100 but later discover there was only £99 of clean capital, is the cleansing still valid in relation to the £99 or is the entire cleansing invalid?
All in all, we think this is likely to be a case of "business as usual". However, out of an abundance of caution, we would advise clients to consider whether planning based on the new rules can be deferred until it is confirmed that they will be brought in as expected.
For reference, the House of Commons publication showing the amendments to the Finance Bill 2017 can be viewed online (the listed clauses and schedules being those that have been removed).