As you are probably aware, not only from our Summer Budget roundup but also press reports, the Government has announced a radical change to the taxation of non-domiciliaries in the Summer Budget.
These changes are scheduled to take place from 6 April 2017 and a consultation document is expected shortly which will lead to the new rules being formulated in the Finance Act 2016.
The announcements to date are simply broad principles which beg more questions than answers.
The purpose of this blog is to summarise matters at this stage and to set out the latest position as follows:
- If an individual has been resident in the UK for at least 15 out of the previous 20 years, automatic deemed domicile status will be applied from that point onwards.
- Such individuals will be automatically deemed domiciled in the UK after ceasing to be resident for a period of five years.
- UK individuals who originally had a UK domicile of origin but left the UK and acquired a non-UK domicile of choice will be deemed domiciled in the first year of their UK tax residency should they ever return.
Whilst non-domiciliaries will maintain their status in general law, for tax purposes once they are resident for 15 years and therefore deemed domiciled, the remittance basis charge will have no relevance and a worldwide basis of taxation of income and gains will prevail automatically.
The newly introduced £90,000 remittance basis charge which applies from 2015/16 onwards for those individuals who have been resident for 17 years or more out of the previous 20 years will become redundant from 5 April 2017.
The precise detail of the measurement of the 15 years is not clear at present. Complications can sometime arise where individuals arrive in the UK and they obtain a split year treatment for the year of arrival (i.e. they are tax resident from the day they arrive rather than the previous 6 April). Hopefully, the consultation document will address points of this nature so that the precise determination of when the 15 year-period expires can be assessed with clarity.
The key point in these provisions is that there will be no ‘grandfathering’ for individuals. There is very unlikely to be any form of transitional relief so that the new law will apply to anyone who has UK non-domicile status no matter their position.
One point to bear in mind is that deemed domicile status of an individual does not affect the status of children. If the father of a child has a non-UK domicile of origin, the child’s domicile status is assessed independently of the deemed domicile status of the father. Accordingly, if a child has been resident for 15 out of the previous 20 years, they will be deemed domiciled in the UK under these general principles.
More information will be gleaned once the consultation document is published. It is our intention to keep our clients updated taking into account the facts in each and every case.
For more information, please contact us.