Changes to the 'non-dom' rules: The countdown begins
With just a year to go until the new 'non-dom' rules are due to come into force on 6 April 2017, we consider what the changes could mean for 'non-dom' individuals currently resident in the UK or planning to return in the future and why action should be taken sooner rather than later.
In the Summer Budget 2015 the Government announced proposals to extend the application of the concept of deemed domicile beyond inheritance tax (IHT). The proposals focus on bringing two particular groups of individuals into the deemed domicile regime: (i) those that have lived in the UK for a long time; and (ii) those that had a UK domicile at birth, moved to another country, and then return to the UK.
Deemed UK domicile for long term residents of the UK
Under the current regime, a foreign domiciliary will be deemed domicile for UK IHT purposes if they have been resident in the UK for 17 of the past 20 tax years. From 6 April 2017 the government plans to introduce changes that will see people of foreign domicile, who have been living in the UK for at least 15 of the past 20 tax years, being treated as UK domiciled for personal tax purposes (IHT, capital gains tax and income tax). Such an individual will be taxed on their worldwide income and gains on the same basis as UK domiciles.
For those of you thinking this is an issue to ignore until many years in the future, think again! The clock does not start from 2017, it has already started and, for some, it will expire on 6 April 2017. There is no proposed grace period or adjustment period. This means that if, for example, you arrived in the UK on 5 April 2004, you will become deemed domiciled from 6 April 2018 – just two years away!
Any individual with UK deemed domicile status who is thinking of leaving the UK will need to spend more than five years living outside the UK to cease being UK deemed domicile. Only after six complete tax years outside the UK is the clock reset and the individual can return to the UK and embark on another 15 years as a UK resident before re-acquiring deemed domicile status.
The returning UK 'dom'
It is not only long term residents of the UK who need to be aware of the planned changes. Different rules are proposed for anyone who has a UK domicile at birth, leaves the UK and acquires a domicile of choice in another county but subsequently returns here. The new rules will mean that you are treated as a UK domicile for tax purposes on your return irrespective of your domicile status under general law.
The government's consultation on the proposed changes closed on 2 March 2016 and the response is due to be published after the summer recess. The changes will be legislated in the Finance Bill 2017 and introduced from 6 April 2017.
For further advice on how the proposed changes might affect you, please contact the Blake Morgan succession and tax team.