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Tax facts: Resident and non-domiciled individuals

Tom Elliott, Partner, Head of London Private Clients
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The position for tax-resident and non-domiciled individuals is now much clearer. 

Below we outline six important things that should be considered pre-5 April 2020 to allow non-doms to protect their position and manage their exposure to  UK tax.

 Act now: tax planning opportunities

  ►  Year-end tax planning opportunities for individuals
  ►  Tax planning for residential property owners
  ►  Profits for business owners and their families
  ►  Key tax considerations for Trustees
  ►  Radical changes to UK Inheritance Tax proposed
  ►  Concerns for the future of Entrepreneurs' Relief

UK residency status

Coming to the UK

The tax residency status of an individual generally determines their exposure to UK direct taxes.

Consideration should be given to suitable pre-arrival planning in the tax year before an individual first becomes UK tax resident. This is so that the individual and his other advisers fully understand the consequences of becoming UK tax resident and to ensure that their exposure to UK taxes is sensibly managed. If a move is imminent, one possible option could be for the individual to delay their planned move to the UK until after 5 April 2020 to postpone their UK tax obligation for a further tax year.

Resident or not resident

The number of days (or, more specifically, midnights) an individual spends in the UK is the most significant determining factor for their residence status. As we approach the tax year end it is important to review the number of nights spent in the UK since 6 April 2019 in order to where possible, manage time in and outside the UK between now and 5 April to protect the desired position and assess any tax exposure.

Deemed domicile

The UK government introduced a number of important changes affecting the taxation of non-doms that took effect from 6 April 2017. Individuals will be treated as deemed UK domiciled for all tax purposes where they have been UK resident for at least 15 of the previous 20 tax years. Non-doms becoming deemed domiciled from 6 April 2020 should consider:

  • leaving the UK before 6 April 2020
  • setting up an excluded property trust to shelter non-UK assets from UK inheritance tax prior to becoming deemed domiciled
  • taking advantage of the final opportunity to claim the remittance basis by advancing the receipt of foreign income and gains into the current tax year.

Rebasing assets for Capital Gains Tax (CGT)

Those who became deemed domiciled from 6 April 2017 because they have been UK resident for 15 or more years, and who have paid the remittance basis charge (RBC) for any year are able to rebase their overseas assets at their market value on 5 April 2017.

In practical terms, this means that any gain accruing prior to that date is not subject to UK tax on the disposal of the asset, providing that, at the time of the disposal, the individual has not become UK domiciled as a matter of general law, and there has been no break in their UK tax residence in the period from 6 April 2017.   For those non-doms who may acquire a domicile of choice in the UK in the coming years may want to look at ways of “locking in” the benefit of rebasing whilst it is still available. 

Remittance planning

For those non-doms who are now deemed to be UK domiciled, consideration should be given to identifying current year income and gains which, as they are now subject to UK taxation as they arise, can be remitted to the UK without further tax cost.

Foreign capital losses

Non-domiciled individuals may elect for foreign capital losses to be treated as losses allowable against UK capital gains. The time limit for the election is four years from the end of the first tax year for which a remittance basis claim is made. Those who have claimed the remittance basis for the first time for 2015/16 will need to consider making an election by 5 April 2020.

Taxation of UK property gains

Non-residents are now subject to Non Resident Capital Gains Tax (NRCGT) on both residential and non-residential property whether held directly or indirectly. 

Gains on residential property apply to the increase in value from April 2015 and on non-residential and indirectly held property from April 2019.

The rules on indirectly held property operate in such a way to identify “property rich” entities (where 75% or more of the value of the entity is derived from UK property interests) and to levy a charge to NRCGT to those non-residents who have held a 25% stake in such entities at any time in the preceding two years.

A NRCGT Return must be submitted to HMRC within 30 days of the conveyance of the property to avoid late filing penalties. Given the short filing deadline it may be appropriate to obtain and hold valuations of properties as at 5 April 2015 and 5 April 2019.

How can we help?

Navigating taxation for non-domiciled individuals is very complex but there are a number of opportunities available depending on the individual’s situation and residency status. For more information please contact your local Crowe contact or read our non-dom planning opportunities and changes to the taxation of non-resident Trusts briefings.

Contact us

Our national private clients team provides specialist tax advice to some of the
most successful individuals and families in the UK. We understand that absolute
discretion is essential and take pride in building long-term relationships with
our clients. Get in touch with us today.
Tom Elliott
Tom Elliott
Partner, Head of London Private Clients