The Chancellor’s 2016 Budget devotes very little attention to non-doms. This alone is something of a relief, given the number of recent changes to these rules.
The 2016 Budget confirms that the main changes announced in the Summer Budget 2015 will be introduced in the Finance Bill 2017 and become effective from April 2017 (i.e. deemed domicile status for long term resident individuals and IHT for UK residential properties held in offshore structures).
The good news announced today is that a long term resident who becomes deemed UK dom from April 2017 will have their foreign assets ‘re-based’ for UK tax purposes. Consequently, only the increase in value in those assets accruing after April 2017 will be subject to tax on the arising basis when those assets are disposed of in a later period.
This takes the sting out of the proposed changes for long-term residents with large portfolios of foreign assets standing at a gain. Whilst this strikes us as being relatively generous, it follows the approach adopted when the Government introduced the “annual tax on enveloped dwellings” charge and non-resident capital gains tax on UK residential property. In both cases, the Government rowed back from its initial proposal that any gains arising on disposals made after the introduction of the new rules would be taxable, accepting instead a re-basing concept.
Individuals owning liquid financial investments (such as stocks and bonds) may have been able to achieve a similar effect by disposing of those assets in early 2017, to trigger foreign gains before the new rules come into effect, and then repurchasing identical assets after April 2017.
However, this proposal removes the need to do so and goes further to benefit those with illiquid capital assets who might not have been able to sell and re-acquire those assets (e.g. non-UK real estate).
It is not yet clear how the pre-April 2017 element of gains will be taxed although we anticipate that they will continue to be taxable on the remittance basis.
The accommodative stance of this proposal makes us hopeful that a sensible approach will be adopted when the detailed provisions governing these changes are released, hopefully later this year.