24th March 2016
The 2016 Budget has confirmed that the main changes announced in the Summer Budget 2015 will be introduced in the Finance Bill 2017 and become effective from 6 April 2017.
A summary of these changes are:
- · Introduction of a ‘deemed domicile’ rule for all tax purposes – this applies to any non-UK domiciled individual who has been resident in the UK for at least 15 of the past 20 tax years. It also applies to anyone born in the UK with a UK domicile of origin whilst they are UK resident. Such individuals will become liable to UK taxes on their worldwide income and assets.
- · ‘Grandfathered’ protected status for offshore structures - non UK domiciled individuals who established an offshore structure before becoming deemed UK domiciled will not be taxed on foreign income and gains (including UK gains) retained in the trust.
- · Offshore structures holding UK residential properties – these will cease to be excluded property and so will be liable to UK Inheritance Tax.
There were also two further announcements in the 2016 Budget as follows:
- · A long term resident who becomes deemed UK domiciled from April 2017 will have their foreign assets rebased for UK tax purposes. This means that only any increase in value in those assets accruing after April 2017 will be subject to UK tax on the arising basis if the asset is sold. It is not currently clear whether the remaining gains will be taxable on the remittance basis.
- · Transitional arrangements would also be put in place for offshore structures of individuals who become UK deemed domiciled.
Full detail of these changes will be introduced in Finance Bill 2017. This will enable us to understand the full implications of these changes and how they will operate.
The tax free uplift for CGT purposes for non UK assets will apply only to individuals who will be treated as deemed UK domiciled from April 2017. Such individuals should consider whether to sell any foreign assets now or wait until post April 2017.
Any non UK domiciled individuals who are close to being UK resident for 15 years should take advice on their options for all tax purposes given these new rules.
Anyone who is considering leaving the UK would need to become non UK tax resident for 6 consecutive tax years in order to restart the 15 year clock. Care would need to be taken to ensure they are non UK tax resident under the Statutory Residency test.