Levelling the playing field – many are now set to become UK Deemed Domicile...

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It is the new year! No...we don’t mean that we have just realised it isn’t 2016 but it is now 2017, but 6 April 2017 marks the start of the new financial and tax year. This means that all your previous tax rates, bands and allowances are ‘reset’. Not only this, but it marks the introduction of a new wave of tax rules and regulations that are set to affect how individuals and companies alike are taxed in the UK. Here we will pay particularly close attention to the changes to domicile rules in the UK and in particular, a new ‘deemed domicile’ concept that is expected to primarily hit the longer term UK residents as their non-UK situated assets and gains may well start coming in to the charge of UK tax.

What are the current taxation rules for UK residents?

We start by looking at the current UK rules of taxation for UK residents who are non-domiciled in the UK. As a non-UK domiciled UK resident tax payer, you have the option of being assessed to UK tax under either the arising basis (AB), or the remittance basis (RB) of taxation. The arising basis was where you paid tax in the UK on your worldwide income and gains regardless of whether you did bring the money into the UK. This differed from the remittance basis where you paid UK tax only on your UK sourced income and gains and any non-UK income and/or gains that you physically remitted to the UK. You can see that there could be a significant advantage here if you earnt millions offshore and never brought a penny to the UK. The catch under the previous rules were that once you became a long term UK resident (i.e. you spent at least 7 of the last 9 tax years in the UK), in order to access the RB, you would potentially need to pay the Remittance Basis Charge (RBC). This facility was at a cost to the taxpayer of at least £30k and rose to as much as £90k a year (if you were resident in the UK for at least 17 of the last 20 tax years).

What are the changes to the 2017 taxation rules?

Given that the UK government and HMRC felt it was an unfair advantage for non-UK domiciled individuals who resided in the UK for long periods of time to reduce their non-UK based income/gains via this RBC, as of 6 April 2017, any individual who has been a UK resident for at least 15 of the last 20 tax years will now be ‘deemed domicile’ in the UK. The major effect of this is that even though you may be a non-domiciled individual, you will no longer be able to access the RBC and RB or taxation and instead will need to pay UK tax on your worldwide income and gains regardless of whether you bring that money into the UK. Those non-doms who come to the UK for short periods of time will not be affected by these new rules implemented by HMRC.

Are these taxation rule changes implemented instantly?

In addition to the above changes to UK taxation of non-doms, there are a number of ‘grace-period’ rules which will enable individuals to align and formalise their tax affairs in order to ensure their offshore assets are best organised to optimise their tax position going forward. One of these is the ability to ‘cleanse’ any offshore bank accounts which contain various different sources of income and gains and which have become ‘mixed funds accounts’ in the eyes of the revenue. Given that these rules become extremely complicated and often require the input and advice of UK tax specialists, should you wish to find out more about the new deemed domicile rules and how to optimise your tax position, then please contact one of Wisteria’s tax experts on 020 8429 9245 or email [email protected].

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