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.
