The Finance Bill 2017 contained a number of measures altering the way in which long term UK resident non-doms and UK residential property held in certain offshore entities would be taxed in the UK. However, last week it became clear that all of the non-dom tax changes would be dropped from the Finance Bill, to allow a slimmed down version of the Bill to progress through the legislative process before Parliament is dissolved ahead of the General Election on 8 June.
So what is the current state of the law? Are the relevant pre-6 April 2017 tax laws still in force? Are non-doms who have been resident here in the UK for 15 out of the previous 20 tax years now deemed domiciled, or can they still make use of the remittance basis of taxation? Does foreign corporate ownership of UK residential property still provide a UK Inheritance Tax (IHT) shelter or not?
Unhappily for clients and their advisers, no one can give definitive answers to these questions at this point. The Government has said that it remains committed to the omitted provisions and intends to legislate for them at the earliest opportunity at the start of the new Parliament. However, that presupposes that the same Government will be returned to power after the General Election. Even then, it is unclear whether the non-dom measures in a new Finance Bill will be given retrospective effect from 6 April 2017 or whether their effective date will be delayed, perhaps to the start of the next tax year on 6 April 2018.
There is no single, right response to this unexpected announcement and any affected non-doms should ask their adviser to review their position and give them specific advice.
A particular issue affecting holders of UK residential property in offshore structures (typically a family owned offshore company which itself owns the UK residential property) is whether the company should be liquidated now, if that has not already happened. Unless the property is being let out on a commercial basis, it will be subject to the Annual Tax on Enveloped Dwellings (ATED) while it remains in corporate ownership, so there is an incentive to liquidate and avoid any further ATED exposure. However, in these cases, it has become a trade-off between IHT and ATED. Is it worth remaining in the corporate structure, just in case it continues to provide an IHT shelter? The price of playing this wait-and-see game can be measured in the ‘cost’ of the ATED payable with each day that the corporate structure is retained.
The status of the rebasing and mixed fund cleansing opportunities for non-doms trailed in the Finance Bill are also now uncertain, and therefore any non-dom planning on making disposals to take advantage of either of these should also review their position before proceeding.
The situation is highly unsatisfactory for both non-doms and their advisers and we can only hope that clarification of the current state of the law will follow swiftly after 8 June.
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