In September 2015, the government consulted on proposals to treat non-doms as deemed UK domiciled for tax purposes once they have been resident in the UK for 15 of the past 20 years. Three important elements were consulted on in addition to the general change in legislation.
Years resident in the UK as a child
A significant number of respondents thought it was unreasonable to treat years spent in the UK during childhood as counting towards the deemed-domicile test. The government rejected this view and years resident in the UK during childhood will count towards the 15 years of UK residence.
Rebasing offshore assets to eliminate gains pre 5 April 2017
Budget 16 announced that those individuals who will become deemed-domiciled in April 2017 because they have been resident for 15 of the past 20 years should be able to rebase directly held foreign assets to their market value on 5 April 2017.
Rebasing should apply on an asset by asset basis and there should be no requirement that any part of the sales proceeds relating to the part of the gain which arose before April 2017 should be left outside the UK. Where the asset was originally purchased with clean capital, the entire proceeds from the disposal should be capable of being brought to the UK without triggering a remittance. However, where it was purchased wholly or partly with foreign income and gains, an element of the disposal proceeds will still relate to those income and gains and so should be subject to the remittance basis in the normal way when the proceeds are brought to the UK. The protection will be limited to those assets which were foreign situs at the date of the Summer Budget 2015 and not assets acquired subsequently.
Those individuals who become deemed-domiciled in years after April 2017, and those who become deemed-domiciled because they were born in the UK with a UK domicile of origin will not be able to rebase their foreign assets in this way.
Draft legislation on this aspect of the reforms will be published later in 2016.
The government has decided to introduce a temporary window in which individuals with mixed funds (part clean capital, part gain and part income) will be able to rearrange their mixed funds overseas to enable them to separate those funds into their constituent parts. This window will last for one tax year from April 2017 and it will provide certainty on how future amounts remitted to the UK will be taxed.
The special treatment will only apply to mixed funds which consist of amounts deposited in bank and similar accounts. Where the mixed fund takes the form of an asset, it will not qualify for the special treatment. However, an individual will be able to sell any overseas asset during the transitional window and separate the sale proceeds in the same way as any other money.
If you have any queries in relation to these proposals, please do not hesitate to contact us.
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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.