What should I do for my non-dom clients?
First, let them know about the changes. Second, check when they become deemed domiciled. If it looks like your client will be deemed domiciled from April 2017 – in other words, they have spent 15 or more of the last 20 years in the UK under the new rules – then there are some key actions which should be taken.
1. Consider establishing a trust (if one doesn’t already exist) before they are deemed domiciled to defer income tax and capital gains tax.
2. Consider putting any non-UK property into a trust to protect it from inheritance tax.
3. If a trust exists, consider whether the trustees should make distributions from it before they are deemed domiciled, and whether the trust should be restructured.
4. Double check the position when draft legislation is released.
This generally sounds like bad news. Is there any upside?
The new rules offer some upsides for non-doms. Principally, non-doms who become deemed domiciled next year are permitted to rebase the value of assets that have been held offshore since July 2015 with effect from April 2017 – in other words, effectively have them revalued at current rates and potentially brought onshore to the UK without facing any tax penalties. The biggest benefit here is that it can offer an uplift in the value of the assets, which can be brought to the UK, with no capital gains tax due to be paid on the revaluation.
Non-doms are also offered a one year window from April 2017-April 2018 to ‘cleanse’ funds which consist of a mixture of income, gains and capital. The income, gains and capital can be separated out, enabling the non-dom to remit these elements separately, in a tax efficient manner.
What happens if we miss the deadline, or get things wrong?
Some unfortunate consequences will follow! As explained above, if a non-dom becomes deemed domiciled without having first prepared for the change and made plans to protect assets where possible, then income tax and capital gains tax will apply to all of their worldwide income and gains on directly held assets. Their worldwide assets will also be subject to inheritance tax, including any UK property that is owned through a non-UK company.
Does this send a discouraging message to non-doms?
It is hard to avoid the conclusion that, in tandem with Brexit, this sends a discouraging message to those who are only partly tied to the UK. However, as we have outlined, there are some clear options to be taken which will enable non-doms to plan for April 2017, and even those who won’t immediately become deemed domiciled on that date should start thinking about their position well in advance of reaching their 15 year mark.