If you are a non-dom living in the UK, certain tax residency milestones can impact your tax status.
A £30,000 charge applies to access the remittance basis for those who have been resident in the UK for some part of at least 7 out of the previous 9 tax years. This ‘remittance basis charge’ increases to £60,000 for individuals who have been UK resident in at least 12 of the previous 14 tax years.
Since 6 April 2017, a non-dom who has been UK tax resident in at least 15 of the previous 20 UK tax years is treated as domiciled in the UK for all UK tax purposes, including inheritance tax, and will no longer be able to make a claim to be taxed on the remittance basis.
To compensate, two valuable transitional reliefs have been introduced:
I. Non-UK domiciled individuals typically have a one–off opportunity to re-organise offshore mixed funds into their constituent parts. This allows them to segregate “clean capital” or previous UK tax earnings from other income/gains which would be taxable if remitted to the UK. This opportunity to identify funds which can be remitted to the UK tax free is only available until 5 April 2019 and the planning must therefore be undertaken as soon as possible.
II. Individuals becoming deemed domiciled on 6 April 2017 under the 15 out of 20 year rule will be able to benefit from rebasing of their foreign situated capital assets to their market value on 5 April 2017, for CGT purposes.
There may be planning opportunities, particularly for those approaching or affected by the above watersheds.
In some cases it can be beneficial for non-domiciled taxpayers to establish offshore trusts to hold assets, prior to becoming deemed domiciled in the UK.
From a UK tax perspective, a key advantage of this structure is that the value of non-UK situs assets in the trust should be permanently sheltered from IHT, regardless of the future domicile or deemed domicile position.
This planning also has further potential benefits with regard to income and capital gains tax.
Remittance Basis Planning
A non-domiciled taxpayer should take care in terms of transferring funds to the UK, and (subject to circumstances) may be able to identify funds which attract a lower or nil tax charge if remitted to the UK.
For a long-term resident, the remittance basis charge (and increases to the charge over time) may also make it advantageous to be taxed on his/her worldwide income and gains as opposed to paying the remittance basis charge.
Anyone contemplating a transition from the remittance basis should consider e.g. realising gains prior to being assessed to UK tax on a worldwide basis.
Similarly, an individual faced with payment of the remittance basis charge may consider investment structures/strategies to defer investments returns from the charge to UK tax.
Business Investment Relief (BIR)
BIR allows a taxpayer claiming the remittance basis to remit their offshore income and gains tax free if they make a qualifying investment/loan in the UK.
This is a useful planning tool and is particularly valuable if combined with an EIS/SEIS qualifying investment.
Foreign Capital Losses
Individuals claiming the remittance basis cannot offset foreign capital losses against gains taxable in the UK unless a specific election is made. The time limit for making a claim is four years following the end of the first tax year from 2008-09 onwards for which the remittance basis is claimed. Those who first claimed the remittance basis in respect of the 2013-14 tax year will therefore only have until 5 April 2018 to make the claim.
It is not always beneficial to make a foreign loss election and this will depend on your own personal circumstances. Once a loss election has been made there is a strict order of set-off against gains and therefore anyone who is considering making the election should contact us for further advice.
Please contact us for more detailed advice and to discuss how we can help non-doms manage their UK tax position.