New domicile rules
Significant structural changes introduced from 6 April 2017
The biggest change is for those who have a UK domicile of origin (for example, born here of British parents). The remittance basis (ability to only pay UK taxes when bringing overseas funds here rather than on a worldwide basis) will no longer be available for such people on their return to the UK. The IHT advantages of non-dom status will only be available in limited circumstances after at least 15 years of non-residence and assuming that a legitimate domicile of choice is acquired in another country.
Origin outside UK
For those who have a domicile of origin outside the UK and are here only for a limited time, the remittance basis remains available, and there are still considerable advantages to be had with careful planning. Once a stay in the UK extends beyond 15 years, it will be more important to take stock of their global financial affairs and consider how they can be arranged, as at that point the remittance basis ceases to be available and worldwide income and gains will be taxable.
Best way forward
Individuals who have been resident for more than 15 years in the UK have some 18 months to consider the best way forward. For many people, the £90,000 charge was already a step too far; the remittance basis was not practical and its abolition may not be missed. The Income Tax and Capital Gains Tax points may therefore have a limited impact, although double tax relief points should not be overlooked.
Of perhaps greater significance for this group are the IHT changes. There are a small number of people who will have been here for 15 years as of 5 April 2017, and so their deemed domicile status will be accelerated.
An Excluded Property Trust (EPT) will remain valuable for IHT protection on overseas assets, but from now on, if there are any withdrawals from the trust after the 15-year date, these will be taxed in full, regardless of where in the world the distribution is made. For property staying in the trust, the IHT protection previously afforded by holding UK property through an offshore company is now removed. So from this point, every trust holding UK residential property – even indirectly – can face IHT costs in the same way as UK trusts.
As the Annual Tax on Enveloped Dwellings (ATED) remains, there may be little purpose in using a company in an offshore family trust – at least as far as real property is concerned.
A similar transparency will apply on the death of the owner or shareholder of a partnership or company holding UK residential property, regardless of whether the property is let or self-occupied and regardless of its value.
The combination of these rules will mean that the focus of IHT planning will change.