The remittance basis and the 15/20-year rule
Non-domiciled individuals who have been a resident in the UK for 15 of the past 20 financial years are now considered domiciled in the UK for all associated tax purposes, regardless of when they arrived.
The ‘15/20-year rule’ effectively means that such individuals will no longer be entitled to claim the remittance basis for Income Tax or Capital Gains Tax (CGT) purposes. This means that those affected will be subject to UK tax on their worldwide income and gains.
Furthermore, anyone who previously had a domicile of origin in the UK and later moved abroad, thus acquiring a domicile elsewhere, will have their UK domiciled status immediately reinstated if they return to the UK.
Non-doms’ residential property subject to UK Inheritance Tax
Non-doms who hold UK residential property indirectly through an overseas intermediary, such as an offshore trust, will be liable for Inheritance Tax (IHT) on those properties.
Previously, residential property held in such structures would be overlooked as ‘excluded’, but under the current rules, such property – however held – will be within the scope of IHT. This means that UK IHT is payable upon any significant IHT event, including a death, gift or ten year anniversary of a trust.
Grace period for ‘mixed funds’
When the changes were introduced, non-doms with offshore funds made up of untaxed foreign income and gains were granted a grace period of two years April 2019 to rearrange these mixed funds, sell any assets and separate any funds into their constituent parts of foreign income, foreign gains and clean capital. The latter can then be remitted from their segregated clean capital account in line with previous rules.
This gives an opportunity for people to reorganise their affairs to benefit more from the remittance basis where this is still available, or where it has been used previously, as those old unremitted monies remain liable to UK tax under the remittance basis, even if they are now subject to tax on an arising basis.
Under these rules, excluded property trusts can be used as an important planning tool as they will remain an effective way of sheltering assets from UK Inheritance Tax before an individual becomes domicile.
This will also apply to those who are newly ‘deemed domiciled’ under the 15/20-year rule.
If you are concerned that these important changes to the taxation of non-doms affect you, please contact Rotherham Taylor. If you are able to get in touch sooner rather than later, our experts can determine the wider implications of these tax changes, how you will be personally affected and how we might be able to help you to mitigate any potentially heavy tax charges.
