Individuals who are resident and domiciled in the UK are taxed on their worldwide income and gains. Individuals who are resident but not domiciled in the UK (‘non-doms’) may claim the remittance basis so that they are only taxed on their foreign income and gains to the extent that those funds are remitted to the UK. Long term ‘non-dom’ UK residents are able to claim the remittance basis but are usually required to pay a remittance basis charge (‘RBC’) of between £30,000 to £90,000 per annum for the privilege, depending on the number of years that they have been resident in the UK.
UK doms are subject to inheritance tax (‘IHT’) on their worldwide assets. In contrast, non-doms are usually only subject to IHT in relation to UK property subject to special anti-avoidance rules. For example, ‘non-doms’ who are long term residents are deemed to be UK domiciled for IHT purposes after being resident in the UK for 17 of the last 20 tax years and are then liable to IHT on their worldwide assets. They can only lose their deemed domicile status by being non-UK resident for four tax years.
Some UK doms may acquire ’non-dom’ status by leaving the UK to settle in a foreign country on a permanent basis. Often, if they return to the UK their UK domicile status reverts on their return but, in a small minority of cases, they may assert that they retain their ‘non-dom’ status for some time.
Some non-doms settle offshore trusts. Provided the trust does not have any UK source income and the individual does not remit the trust income to the UK, the trust income may not be subject to tax in the UK. Further, ‘excluded property trusts’ may not be subject to UK IHT.
From April 2017 an individual who has been resident in the UK for 15 of the last 20 years will be taxed on their worldwide income and gains. There will be no special grandfathering rules for those already in the UK. The government will consult on whether split years will count towards the 15 years. They will also consult on the need to retain a de minimis exemption beyond 15 years where total unremitted foreign income and gains are less than £2,000.
In addition, an individual who has been resident in the UK for 15 out of the last 20 years will be subject to IHT on their worldwide assets.
Individuals born in the UK to UK domiciled parents will no longer be able to claim non-domicile status if they leave the UK but then return and take up residency.
Special new rules will apply to offshore trusts. Non-doms who have set up offshore trusts and are deemed domiciled under the 15 year rule will not be taxed on the trust income and gains that are retained in the trust and such excluded property trusts will have the same IHT treatment as at present (but see [section on UK residential property and inheritance tax]). Such individuals will be taxed on any benefits received from trusts on a worldwide basis from April 2017.
Further details will be available during consultation.
Non-doms need to review their tax arrangements. Some long term residents may wish to leave the UK before the new rules take effect and advice should be sought in this regard.
Those that wish to remain and those coming to the UK should seek advice as to how the new changes will affect them. There will be no ‘one size fits all’ answer. Some may wish to wind up existing offshore trusts, others may wish to set up new ones.