As part of the publication of responses to the August consultation the government has taken the opportunity to make some further changes to the proposed deemed domicile rules for long term UK resident individuals. The details of these rules as we understood them to be following the August consultation are set out in our Briefing Note: The Non Dom Tax Changes: Time to Start Making Plans.

In this blog we look at what we consider the ‘good’, the ‘bad’ and the ‘ugly’ of the government’s subsequent changes to the deemed domicile rules, and what this now means for non doms as 6 April 2017 fast approaches.

The Good

  • Those individuals who become deemed domiciled under the 15/20 Test but who subsequently leave the UK will lose their deemed domicile status for inheritance tax (IHT) purposes at the start of their fourth year of non residence. This change brings the new rules in line with the existing deemed domicile provisions for IHT purposes.
  • The transitional rule allowing non doms to unravel mixed funds to enable them to remit the funds to the UK is to be extended from one year to two years. This will give non doms more time to plan in anticipation of becoming deemed domiciled.

The Bad

  • The government does not propose extending the ability to rebase foreign assets as at 6 April 2017 beyond those individuals who are set to become deemed domiciled at that date. This is despite calls to make rebasing more widely available, in particular to non doms who become deemed domiciled in later years, and to assets held through trusts and other structures.
  • The government considers its policy in relation to the tax treatment of non doms who were born in the UK with a UK domicile or origin (so called Returning UK Domiciliaries) as settled. More information on how these rules will operate is contained in our Briefing Note: Non Doms Born in the UK Urgently Need Advice on ‘Domicile of Origin’.

The ‘Ugly’

  • The government’s position in relation to the future taxation of offshore trusts has been far from clear; from an initial proposal for a charge on taxable benefits without reference to underlying income or gains; to one which recognises the protected tax status of trusts set up before a settlor becomes deemed domiciled (unless the trust becomes ‘tainted’ through distributions to the deemed domicile settlor or additions to the trust in which case future income and gains are taxed on the settlor); to the current proposal detailed in the response document which imposes a tax charge on the receipt of benefits from a trust with reference to the underlying income and gains within a structure unless the trust becomes tainted (but only through future additions).
  • The latest proposal is the result of extensive lobbying by professional bodies to the government to formulate a more workable set of rules and is part of a wider ranging review of the tax rules around offshore trusts.
  • The government’s latest clarification is helpful but what is less helpful is that the draft legislation in relation to the income tax provisions is still under wraps. The government has said that it will be published before the draft 2017 Finance Bill (which we can anticipate to be around the end of March) we understand it could be published by the end of January. With the timeframe for non doms to carry out any planning before becoming deemed domiciled next April shortening by the day it is imperative that this further draft legislation is published as soon as possible.
  • We will be looking at the detail of the government’s proposals in relation to the taxation of offshore trusts in a separate blog article in due course.