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Overview: those affected by the new non dom tax regime

In summary, the new regime will affect the following individuals:

Those who were born in the UK with a UK domicile of origin, but have subsequently left the UK and acquired a domicile of choice elsewhere before resuming residence here.
Those who are foreign domiciled but have been resident in the UK for 15 or more of the previous 20 tax years. Part years of residence count here.
Those who are foreign domiciled (and not deemed domiciled) and hold UK residential property via an overseas company, with or without an overlying offshore trust.
Individuals who have created a non-UK resident trust prior to becoming deemed domiciled, and the beneficiaries of those trusts.

Individuals falling under the first two categories will be treated as deemed UK domiciled for all tax purposes and will no longer be able to access the remittance basis. They will instead be taxable in the UK on worldwide income and gains arising after 5 April 2017. Any offshore trusts they have created while foreign domiciled are also highly likely to be affected. The individual’s residence position is crucial here, and will need to be reviewed on an ongoing basis to ensure the rules are applied correctly and necessarily.

Individuals falling under the third category will find that their UK residential property is no longer excluded from the UK Inheritance Tax (IHT) net after 5 April 2017. The directors of the overseas companies will in many cases need to consider de-enveloping the property, particularly if the Annual Tax on Enveloped Dwellings (ATED) is in point. Unfortunately the Government are not offering any relief for the UK consequences that may result from removing the property from a structure.

The Government has acknowledged that the effect of a foreign domicilary’s capital loss election and its ordering rules should be switched off for any year in which the individual is deemed domiciled, thereby enabling relief for losses on foreign assets in the normal way.

We would welcome you to discuss your affairs with us at the earliest opportunity, please contact Alison Palmer or your usual Mercer & Hole contact.

 

 

Date: 15th December, 2016
Author: Alison Palmer

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