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All change for Non-UK Domiciles

As originally expected the UK Government will bring in several changes to the way in which non-domiciles are taxed and these shall take effect from 6 April 2017, as originally planned.

Traditionally the UK has been an attractive jurisdiction in which overseas born persons not domiciled in the UK can live, work and establish businesses.  Such resident non-domiciles did not previously pay tax on their overseas income and gains provided they were kept out of the UK. This was called the remittance basis of taxation (although once the individual had been in the UK for more than seven years an annual remittance basis charge of £30,000, £60,000 or £90,000 would have applied, depending upon their length of residence in the UK). In addition, any non-UK sited assets would have been outside the scope of inheritance tax.

The effect of the new rules is to limit the benefits previously outlined. The key proposed changes are:

An individual with a non-UK domicile of origin will become deemed domiciled in the UK for income tax, capital gains tax and inheritance tax purposes after being UK resident for 15 out of the last 20 years (currently 17 out of the last 20 years). Therefore, they will no longer be able to claim the remittance basis of taxation; UK-born individuals who had acquired a domicile of choice outside the UK will automatically become UK domiciled upon taking up UK residence again. This means that they will be taxed on their worldwide income and gains (including those from overseas trusts that they may have established and of which they (or certain family members) are beneficiaries, as well as being subject to inheritance tax on non-UK assets after the individual has been UK resident for one year; Inheritance tax charges will be applied on UK residential property held through offshore structures by non-UK domiciles;

In addition to the above changes a number of concessions have been agreed to ease the transition for many non-UK domiciles:

A rebasing of directly held assets held on 6 April 2017 (which were foreign situs assets from 16 March 2016 to 5 April 2017) will be available for individuals becoming deemed domiciled in the UK on 6 April 2017 under the 15 out of 20 year rule, for capital gains tax purposes, as long as they have paid the remittance basis charge in one or more previous tax years;There will be a facility for cleansing of "mixed funds" in the period up to 5 April 2019 into their separate capital, income and capital gains elements.

Taken as a whole the changes to the taxation of non-UK domiciles are wide ranging and still ongoing. We appreciate that some of our clients may be concerned about how they personally may be affected. As this is a complex area we cannot provide advice. We therefore recommend that you review your personal circumstances with a professional tax adviser. For other enquiries please contact your relationship manager or email us at fiduciary@caymannational.im

Posted October 2017

About the author

Nigel was born and educated in the UK and moved to the Isle of Man in 1995. He previously held leadership roles at a private bank, trust company and AIM-listed ...

Contact Nigel Gautrey MA, Chartered MCSI, DipIoD, FLIBF

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