Finance Bill 2017 changes to the taxation of non UK domiciliaries

The change to the taxation of non UK domiciliaries (non doms) is a very complex area of legislation and as so much is still uncertain it is impossible for those individuals who became deemed domiciled in the UK from 6 April 2017 to plan and structure their affairs with any certainty. We have prepared a briefing to highlight the main problems with the draft legislation published as ICAEW Rep 50/17.

Although the changes to the taxation of non doms was first mooted in Summer 2015 and there have been consultations along the way, the draft legislation has been somewhat hurried. There were several problems with the drafts published in December 2016 and January 2017 and we have worked with HMRC and HM Treasury to try and iron out the issues. However, some still remain in the published Finance Bill 2017 and following the announcement of the General election, it now seems this will become law with just three hours of parliamentary time.

The thrust of the changes are to deem long term UK residents as domiciled in the UK for all taxes after they have been resident for 15 out of 20 years. We have had for many years a deemed domicile rule for non doms for inheritance tax (IHT). The consequences of this for those becoming UK domiciled on and after 6 April 2017 is the cause of many problems and complications in the drafting. We are pleased the decision was taken to defer some of the changes until Finance Bill 2018 to allow further time to ensure the legislation is right. It is much simpler and less time consuming to get the legislation right in the first place rather than having to correct it subsequently.

Other measures include:

  • a short schedule introducing specific valuation rules for three types of benefit under the settlements’ regime and transfer of assets abroad legislation
  • overseas property representing UK residential property will be brought into the inheritance tax net regardless of the domicile status of the owner or settlor of the offshore trust

Changes are also proposed to business investment relief. These are mainly to simplify the process whereby non doms can invest in UK businesses without the funds remitted from overseas becoming liable to UK tax when it is brought into the country (though one change legislates for a current disputed HMRC interpretation of the pre 6 April 2008 legislation).

The briefing covers the five clauses and three schedules introducing the changes.