In the aftermath of the UK’s snap general election on 8 June 2017, there is still no confirmation as to what will become of the proposed changes to the UK’s non-domicile tax regime (the “Proposed Rules”).
In an unanticipated move, the Proposed Rules, which were due to come into force on 6 April 2017, were dropped from the Finance Bill 2017 (now “Finance Act 2017”) to enable passage of the legislation through Parliament ahead of the election. The following changes were therefore not included in Finance Act 2017:
- deeming an individual to be domiciled in the UK for income tax, capital gains tax and inheritance tax purposes after 15 out of 20 years of UK residence (currently, this is 17 out of 20 years);
- treating UK-born individuals who had acquired a domicile of choice outside the UK as being UK domiciled on taking up UK residence again;
- changing the taxation of offshore trusts regime;
- introducing inheritance tax charges on UK residential property held through offshore structures by non-UK domiciled individuals;
- rebasing of assets held on 6 April 2017 for individuals becoming deemed UK-domiciled on 6 April 2017 for capital gains purposes; and
- cleansing of “mixed funds.”
The postponement of the Proposed Rules and continued uncertainty surrounding if and when these rules will be enacted means that individuals should refrain from taking any steps in reliance on the cleansing of “mixed funds” facility until this is enacted. Preparation for cleansing may still be worthwhile as, despite the current uncertainty, this relaxation is still expected to come into force at some stage.
It was initially thought that the Proposed Rules would be enacted through a further Finance Bill this Summer (and potentially backdated to 6 April 2017). However, it is entirely possible that the changes could now form part of an even later Finance Bill this Autumn. This could prejudice individuals who incurred substantial amounts of time and money to organise their affairs in anticipation of the rules coming into force on 6 April 2017, especially if further changes are made prior to enactment.
The Chartered Institute of Taxation has suggested that the commencement of the Proposed Rules should be deferred until 6 April 2018, but with a facility for those taxpayers who would have become deemed domiciled from 6 April 2017 to elect into deemed domiciled status from that date. This would mitigate any unfairness on those who have organised their affairs in reliance on the Proposed Rules coming into force as originally intended.