New tax regime for non-UK domiciled individuals

Some of the tax changes that were put on hold by the UK Government pending the General Election are now law. This was confirmed when the UK Finance (No.2) Act 2017 finally received Royal Assent on 16th November 2017. In particular, the various changes to the tax regime – as it applies to non-UK domiciled individuals – are now in force. Friends Provident International’s Technical Services Manager, Brendan Harper has summarised the main changes to help you understand how it might affect you.

1. 15 year time limit on “non-dom” tax breaks

Until this year, a non-UK domiciled individual residing in the UK could take advantage of the “remittance basis” of taxation, whereby any income or capital gains generated on assets held outside the UK would only be taxable if they are remitted to the UK, unlike for UK domiciled individuals, where such income and gains are taxable immediately. From 6th April 2017, this tax break will no longer be available once the individual has been resident in the UK for at least 15 out of the previous 20 years.

Previously, overseas assets of a non-UK domiciled individual residing in the UK would not be subject to UK inheritance tax (IHT) unless they have resided there for at least 17 out of the previous 20 years. This timeframe has also now been cut from 17 to 15 years.

Tip: Friends Provident International has a range of investment, protection and trust products that can assist non-UK domiciled individuals to reduce their exposure to UK income tax and IHT.

2. New rule for “returning non-doms”

When a UK domiciled individual resides aboard, their worldwide estate is still potentially chargeable to IHT unless they take steps to acquire a new “domicile of choice” in the country where they reside. On doing so, it was possible to take up residence in the UK for short term periods and retain the overseas domicile. Furthermore, it was possible for individuals to set up a trust structure whilst they were non-UK domiciled which would shelter their overseas assets from IHT, even if they subsequently became UK domiciled again.

From 6th April 2017, where a person who was born in the UK with a UK domicile of origin returns to the UK, even for a short term period, they will be deemed to be UK domiciled for all tax purposes. This can impact on trust structures that they had previously set up whilst domiciled abroad. If you are impacted by this, it would be advisable to review any trust structures to ascertain whether they are going to remain effective for IHT planning on your return to the UK.

Tip: Friends Provident International has a range of trust arrangements that are effective for IHT planning by UK domiciled individuals.

3. UK inheritance tax on UK residential property

Until now, it was possible for a non-UK domiciled individual to shelter UK residential property from IHT by holding the property through an overseas company structure. From 6th April 2017, the value of any overseas companies that are made up of holdings in UK residential property will be included in such individual’s estates for IHT purposes.

If you are impacted by this, it is imperative that you review these structures to ascertain their IHT treatment going forward.

Tip: Friends Provident International’s protection products can be used to ensure that there are funds available to cover any UK IHT liability that may arise as a result of these changes.

These changes may affect your tax position, and we recommend that you contact your financial adviser before making any changes.

Adrian Emery – CEO FPI

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