Posted by Nick Day on 16 Jun 2016
Non-Domiciled Rebasing for Capital Tax Gains: April 2017
Non-domiciled UK tax residents will have an automatic rebasing of the capital gains tax (CGT) cost base of their non-UK assets to their market value on 6 April 2017.
Non-Domiciled Rebasing Announcement
The Treasury announced in the summer 2015 Budget that non-domiciled individuals (non- doms) will, from 6 April 2017 onwards become “deemed domiciled” for all UK tax purposes if they have been UK tax resident for at least 15 of the past 20 tax years.
In effect, those non-doms that are impacted will pay tax on the Arising Basis on their worldwide income and gain from 6 April 2017 onwards. Inheritance Tax will also become payable on worldwide assets from this date.
Furthermore, individuals who return to the UK will be deemed domiciled in the UK from 6 April 2017, if they were born in the UK and had a UK “domicile of origin”.
Not much further detail is known at present and the legislation reforming the taxation of non-doms will be included in Finance Bill 2017 in due course.
However, in the March 2016 Budget it was also announced by the Treasury that UK tax resident non-doms will be able to treat the base costs of their personally held foreign capital assets as the market values of the assets at 6 April 2017 for UK capital gains tax (CGT) purposes, when they become deemed UK domiciled on that date under the new rules.
Therefore, this automatic rebasing of the CGT cost leads to the possibility that only capital gains arising from foreign capital assets after 6 April 2017 will be liable to UK CGT.
Questions and Areas of Uncertainty for Non-Doms
The approach appears to be a generous but does lead to several questions and areas of uncertainty such as:
- Will it apply only to individuals that become deemed domiciled on 6 April 2017 or will it also apply to those becoming deemed domiciled under the new rules at a later date?
- Will the rebasing rule apply only to assets held personally and not to assets held via trust?
- How will capital gains relating to non-UK assets up to 5 April 2017 be taxed – will these be tax-free or taxed on the Remittance Basis?
- Notwithstanding the rebasing provisions, can it be assumed that if an asset was bought out of prior non-UK income/gain that has avoided tax under Remittance Basis filing, that this income/gain will be liable to UK tax if the sales proceeds are remitted to the UK?
- How will the rebasing provisions interact with losses and the treatment of assets standing at a loss? What impact will there be on those that have made foreign capital loss elections?
Although the law will change from 6 April 2017 we recommend that non-doms that will be affected should act without delay to review the assets they own and also the status/affairs of family members who could also be impacted by the new rules.
For those with existing trusts a review should be made of the assets held and terms of the trusts in light of the potential new rules. Consideration should also be made to the possibility of establishing and funding trusts before 6 April 2017.
The positive news is that for non-domiciled individuals moving to the UK to work for relatively short periods of time, the UK tax rules remain highly beneficial. Many “expats” we meet and help move to the UK for a few years only, before leaving for work in another country and this group of people are set to continue to enjoy significant UK tax benefits if proper tax planning is undertaken in advance.
Tax Innovations Non-Domiciled Tax Services
We have wide experience of tax planning for non-doms so if you are non-domiciled and would like to discuss how you might legally minimise your UK tax liabilities, please contact us for a consultation or take a look at our exclusive Expat Tax Services for further details of how we can help you.
Read our Top Ten Expat Tax Tips for Individuals Moving to the UK that gives outline details of some of the tax planning that is available.
Contact Us about your Domicile Status and Capital Gains Tax Affairs
If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org.
- Tax Relief For Residential Mortgages
- Property Partnership Incorporation and SDLT
- Overseas Pension Changes 6 April 2017
- Non-Resident Landlords – UK Tax Update
- Top 10 Expat Tax Tips for Individuals Moving to the UK