From 6 April 2017, non-domiciled individuals who have lived in the UK for more than 15 of the last 20 tax years will be deemed domiciled in the UK and no longer able to be taxed on the remittance basis. This represents a dramatic change to the UK's tax legislation and treatment of non-domiciled individuals who had previously been able to claim the remittance basis indefinitely.
The remittance basis allows individuals to opt into paying UK tax solely on UK income and gains and on foreign income and gains that are remitted to the UK. Once deemed domiciled, this option will no longer be available. The individual will be treated the same as UK domiciled individuals. This means their worldwide income and gains will be taxable in the UK on an arising basis, regardless of whether or not these are ever remitted to the UK.
In order to maintain non-domicile status UK resident non-domiciliaries will now have to leave the UK after 15 years and become non-UK resident for at least six consecutive years to effectively reset the remittance basis clock. Evidently, this will not be feasible for most individuals who may wish to consider alternative strategies.
With just three weeks to go until the new rules start, if you expect significant foreign income or gains and you will be deemed domiciled from 6 April 2017, it is critical that you urgently seek tax advice.
One possible solution is to take advantage of a concession – a protected settlement – provided by the Government that relates to trusts set up before you become deemed domiciled. This concession was outlined by The Treasury in the December 2016 consultation response which can be found here (3.22 (iv) Transfer of assets abroad – Chapter 2 Part 13 ITA 2007). This will have the effect of ensuring that your non-UK income and gains are not taxed on an immediate arising basis. You would need to transfer the relevant investments (or at least some of them) into one or more offshore trusts. Provided that nobody takes benefits from the trusts, any income and gains will not be taxed. This may sound restrictive but if the income and gains are not needed in the short or medium term, this is an excellent solution and arguably better than the existing regime as there is no need to pay the annual remittance basis charge of up to £90,000.
We can advise you on various options that will best suit your particular assets and personal requirements, giving you as much flexibility as possible whilst preserving tax-efficiency.
In most cases it will be too late to transfer assets to a trust after 5 April. Any trusts must be established prior to becoming deemed domiciled in order to avoid an immediate 20% inheritance tax charge on the initial transfer. Acting immediately is crucial.