As a follow-up to our article in respect of becoming deemed domiciled in the UK [insert link], with effect from 6 April 2017 it is important to consider the impact of that change. Although being taxed on worldwide income and gains is undoubtedly the headline change, it is important to consider some of the finer detail to make sure that opportunities are not overlooked. One such opportunity is the rebasing election:
- A UK resident non-domiciled taxpayer who becomes deemed domiciled on 6 April 2017 and has paid the remittance basis charge for at least one tax year before 6 April 2017 will be entitled to rebase their foreign assets for CGT purposes to their 5 April 2017 market value. This applies to overseas assets held throughout the period from 16th March 2016 (or date of acquisition if later) to 5 April 2017.
- Foreign assets will be rebased to their sterling equivalent market value at 5 April 2017 and therefore, subject to what happens over the next few weeks, the deterioration of the GBP exchange rate against many major currencies since the Brexit vote could have a material benefit.
- The government has confirmed that the rebasing will apply to non-reporting fund income gains such that the gain which should be subject to income tax in the future will be the gain arising post 5 April 2017.
- Gains accruing to the period post 5 April 2017 will be subject to tax on an arising basis. However, gains arising prior to 6 April 2017 and pregnant within the asset at 5 April 2017 appear capable of remittance to the UK on a tax free basis following disposal of the asset.
- However taxpayers should be mindful that these new rules do not wash out any previously crystallised gains which were used to acquire the asset subject to the re-basing. So, if an overseas asset, which was originally purchased with relevant foreign income or gains is sold and the proceeds remitted to the UK, an element of the proceeds will be taxed according to existing remittance rules.
- The above provisions, and the entitlement to rebase, are intended to apply only to those taxpayers who meet the ‘15/20’ rule on 6 April 2017. Taxpayers who are not subject to the ‘compulsory arising basis’ on the introduction of the changes on 6 April 2017 will not be able to benefit from this re-basing or above concessions.There is no doubt that UK taxation for long term UK resident no-domiciled taxpayers is becoming considerably more complicated. If you’d like any support or advice, please contact us.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.