NEWSFLASH – Government confirms reform of taxation of non-domiciliaries

19 / 07 / 2017

On 13 July 2017, the Government confirmed that it will introduce a second Finance Bill 2017 soon after the Parliamentary summer recess to implement those policies withdrawn from the Finance Act 2017 in light of the General Election. Included will be the major reforms to the taxation of non-domiciliaries (non-doms), originally announced in the summer 2015 Budget but subject to consultation and much debate since then. The reforms will be backdated to 6 April 2017 (the original date for implementation), once enacted.

The reforms include the introduction of new “deemed domicile” rules whereby non-doms who have been UK residents for 15 of the past 20 tax years will be treated as UK domiciled for all tax purposes. A new regime for offshore trusts set up by affected non-doms before becoming deemed domiciled will be introduced so as to protect a deemed domiciled settlor from being taxed on income and gains arising within the trust in certain circumstances. Changes will also be brought in so that UK residential property held within an offshore structure will no longer be excluded from UK inheritance tax.

Non-doms have been in a state of limbo since the General Election announcement, uncertain as to whether these reforms will go ahead and any pre-emptive planning they may have carried out would be wasted. We will need to wait until the full Finance (No.2) Bill 2017 is published after the summer recess (expected in early autumn) to see the complete legislation, but the Government’s confirmation on 13 July, whilst it will generally increase the UK tax liabilities of non-doms, will be welcome insofar as it gives relative certainty of what the UK tax status of non-doms will be for this and future tax years. Affected non-doms can start to think about pressing ahead with any planning they may have put on hold, and taking advice on how the reforms may affect them if they have not already.

Wedlake Bell’s Private Client team includes specialists in tax and estate planning for international individuals. Please contact Camilla Wallace, Head of the Private Client Group, for further information on these reforms or the firm’s services in this area.