The UK is set to suffer a mass exodus of non-dom settlors when new laws come into force next April, Mark Davies Associates has warned.
Changes to the taxation of non domiciles were first announced in the Summer Budget 2015 but, based on the release of specific proposals last Friday (19/08/2016), the implications are likely to be wider reaching and more punitive than many may have anticipated, according to Mark Davies, managing director of the international tax advisory firm. The proposed reforms include changes to the taxation of trusts. While the initial announcements indicated that deemed domiciles would only be taxable on the income and gains in trusts when funds were withdrawn, the latest announcements suggest that if an individual gets a benefit anywhere in the world then for CGT purposes the settlor will be taxed on all the trust gains, whether this is proportionate to the benefit or not. “This was not what the government promised and it is clearly disproportionate”, said Mr Davies. “We anticipate that non-dom settlors will react by leaving the country in droves.”
Mixed funds will also fall under the umbrella of changes occurring from April 2017. Non-doms have been given the opportunity to reorganise their tax affairs in advance of this, however the scope is limited – reorganisation is only available for one year and only in the case of bank accounts and Mr Davies argues that many are likely to be caught short. “For most non-doms, everything will have been invested, so this means that there will have to be a great deal of reorganisation. You have to be able identify the mixed fund which means time consuming and expensive calculations.”
The Summer Budget announced earlier this year by former Chancellor George Osborne indicated that deemed domiciles (those non-doms who have been resident in the UK for 15 out of the last 20 tax years) would be able to ‘rebase’ their personally held offshore assets to their market value when the changes came in in April 2017, meaning that they would only be subject to UK tax on worldwide gains accruing after this date.
However, last Friday’s announcement states that only those who become deemed domicile in 2017 will be eligible for the rebasing election and those who do so in subsequent years will lose out. “It does not seem fair that only people who are deemed domiciled in 2017 will be eligible for the rebasing election, while those who become deemed domicile in the following years lose out. “In addition, anyone who wants to be eligible will need to have claimed the remittance basis, and paid the remittance basis charge (“RBC”). There are going to be non-doms who inherited wealth or property and didn’t claim the remittance basis as it wasn’t economical to do so.”
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