The Government published draft legislation over a year ago changing the basis of taxation for non-domiciled individuals who had been resident in the UK for an extended period. Essentially, the remittance basis of taxation (which allowed income and gains made, and kept, offshore to be free of UK tax) would cease to be available to non-domiciles who had been resident in the UK for more than 15 tax years. In addition, the remittance basis would cease to be available to non-domiciled individuals who were born in the UK and had a UK domicile of origin, immediately on their return to live in the UK (Returners). It was expected that the legislation would form part of the Finance Act 2017 following the Chancellor’s Budget speech in March, and would take effect from 6 April 2017. As a result of the calling of the General Election, the draft legislation was removed from the Finance Act, and since then there has been uncertainty as to exactly what would be introduced, and when.
The Government has now announced that it intends to pass a further Finance Act in the autumn, and that it will introduce the changes to take effect from 6 April 2017. A few technical provisions have been withdrawn, and will probably be introduced from April 2018, but the bulk of the legislation will proceed as anticipated.
In concert with the changes to the remittance basis of taxation for non-domiciles, the Government had also announced its intention to introduce provisions which would apply UK Inheritance Tax not only to UK property, but also to interests in non-resident structures which held, or derived their value from, UK residential property. (Note, these changes do not apply to commercial or other non-residential property.) It has now been confirmed that these changes will also proceed as planned with effect from 6 April 2017.
There are some transitional rules, which again will be retained. In particular, non-domiciled individuals (except Returners) who have paid the remittance basis charge and will become deemed domiciled with effect from 6 April 2017 can rebase their personally held assets for CGT. Individuals who have not hitherto paid the remittance basis charge may wish to consider whether it makes sense to do so for the 2016/17 tax year. In addition, non-doms who have been taxed on the remittance basis have the opportunity to separate out the constituent components (e.g. income, capital gains, clean capital) from overseas mixed bank accounts. This opportunity is available to all non-doms who are taxed on the remittance basis other than Returners, not just those becoming deemed domiciled on 6 April 2017.
The Common Reporting Standard, an initiative instigated by the OECD, has now been signed by more than 100 countries. Broadly, it requires financial institutions (which includes fiduciaries) to report the existence of accounts and structures and the identities of beneficiaries and “controllers” to the tax authorities where the settlor is resident (via the tax authorities where the financial institution is resident). In theory each participating jurisdiction has set a deadline (e.g. 31 July 2017) for reporting the status of accounts as at 31 December 2016, though as this is the first year of implementation it is likely that the deadline will be somewhat flexible. This wide-ranging directive cannot be completely avoided – the sanction ultimately for non-compliance will be an inability to transact or move money. But individuals can consider the exact requirements and plan to minimise the impact.
A register of UK trusts was first trailed by Mr Cameron, in the wake of the Panama papers leak. As a result of the 4th Anti-Money Laundering Directive, the UK has now announced the creation of a UK trusts register. This is to be private, not public, and will be available to HMRC and other official agencies. Trustees of UK trusts will need to disclose details of settlors, beneficiaries, protectors and assets. It is likely this information will be filed with a UK tax return. At present, whilst the regulation has been introduced and is in force, the HMRC facility actually to file the information is not functioning, but it is assumed it will be shortly. In theory, the requirement to disclose to the UK trusts register applies to any trusts (i.e. including non-resident trusts) that hold property in the UK which may generate a taxable liability. It is not entirely clear whether this means that offshore trusts which hold UK property through non-resident companies are subject to the requirements.
For good measure, a further administrative/disclosure obligation is also on the horizon. Any entity or person that transacts in securities will now need to have an LEI. The LEI system in the UK will be run by the London Stock Exchange. From January 2018, in order to transact on a particular portfolio, it will be necessary to cite an LEI.
As if all of this were not enough, HMRC continues to disseminate increasingly aggressive rhetoric against those whom it perceives not to have paid the proper (or “fair”) amount of tax. The trend is for HMRC to seek to use lawyers, accountants and other tax professionals to do their work for them. Fladgate is now obliged by law to disseminate on behalf of HMRC to any clients it may have advised in relation to tax and offshore matters from 2015 – 2016, a rather unsubtle warning to be tax compliant. Whatever the rights and wrongs of this, what is abundantly clear is that the Revenue’s attitude to failure to account for the correct amount of tax, even unwittingly, is becoming increasingly heavy-handed. That tendency is magnified where the tax in question relates to offshore accounts.
We will be in touch again in the autumn when the Finance Bill (No. 2) 2017 is published.