Opportunity knocks for non-UK Domiciles (non-doms)

22/11/2016

Non doms can significantly improve their tax position by reviewing their offshore assets and funds before changes come into force on 6 April 2017.

UK residents who have their permanent home (‘domicile’) outside the UK have a narrow window of opportunity to significantly improve their tax position. Thanks to the outcome of recent consultations, non-doms can reduce their capital gains tax liability on offshore assets and funds if they act before the changes come into force on 6 April 2017.

Reducing the value of assets for tax purposes

Certain non doms will be able to rebase the value of their offshore assets on 6 April 2017, wiping out any capital gains tax (CGT) liability up to that date. Gains on the assets after that date will come under the UK CGT regime. This only applies to directly held assets, not those held through an offshore structure.

To qualify for this relief, non doms must have been resident in the UK for 15 or more of the last 20 years and have paid the remittance basis charge at least once in any year before April 2017.

Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK in exchange for giving up certain tax free allowances and paying an annual charge based on the amount of time you’ve been resident in the UK.

Extracting clean capital

Many long term residents who are non-domiciled in the UK hold mixed funds offshore which contain a blend of income, capital and gains. Income and gains brought into the UK are taxable at the appropriate rate, whereas capital can be brought in tax free.

If the capital in the fund has not been segregated, all money remitted into the UK will be treated as income or gains until the fund is reduced to its original capital investment level.

From 6 April 2017, non-doms with mixed funds who are taxed on the remittance basis will have 12 months to separate the funds into different components. They can then remit funds into the UK from each of the funds, as and when they want to, and pay the right amount of tax.

This one-year transitional arrangement applies to funds deposited in bank (or similar) accounts. Assets are not included in the transitional arrangement, but proceeds from the sale of an asset during that period will be. The proceeds can be separated out and treated in the same way as the deposited funds.

For help and advice on making the most of these transitional arrangements or claiming under the remittance basis, please contact Paula Jeffs.