You will be aware of the confusion and lack of clarity surrounding the UK government’s proposed reforms to the tax regime for non-domiciliaries (non-doms). Following draft legislation released Friday 8 September and further draft legislation released on Wednesday 13 September, the position finally seems to be clearer.
The draft legislation released on 8 September confirms that most of the changes are due to come into force with effect from 6 April 2017 as first anticipated. These include the key provisions relating to non-UK domiciled individuals who have been long term residents (15 years), individuals who were originally domiciled in the UK and the inheritance tax treatment of UK residential property held through certain structures.
As part of these changes introduced with effect from 6 April 2017, trusts will essentially become roll-up vehicles for income and capital gains, even once the non-doms have become UK deemed domiciled for UK tax purposes under these new rules. This was intended to be the incentive for non-doms to stay in the UK in spite of the changes (a “sugaring of the pill”). However, the UK government appears to be concerned that these new advantageous rules will be abused by taxpayers. As a means to prevent this, the second set of draft legislation includes anti-avoidance provisions to come into force from 6 April 2018. These include rules which aim to tax UK resident settlors on trust payments to close family members which would otherwise not be taxable. There are also rules which tax UK residents who receive gifts of cash (or other assets) which originally came from a trust and which would have been taxable if they had received the trust distributions directly.
We have two points to note in particular:
- The anti-avoidance rules, published on 13 September, are not due to come into force until 6 April 2018. This means there may be opportunities to plan and prepare for these rules between now and 6 April 2018, particularly for existing trusts. We would recommend that initial consideration should be given to this as soon as possible. However, the draft legislation is due to be consulted on over the next few weeks so we would generally not suggest that firm action is taken until the legislation is finalised.
- Despite all the changes, the UK still provides a very favourable tax environment for individuals moving to the UK.
If you require further information on anything covered in this briefing please contact Russell Cohen, Claire Randall or your usual contact at the firm on 020 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, September 2017