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. One possible option could be for the individual to delay their planned move to the UK until after 5 April 2019.
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 2018 in order to manage time in and outside the UK between now and 5 April to protect the desired position.
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 2019 should consider:
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.
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.
As a result of the 2017 changes, most non-doms have the opportunity to segregate funds held in offshore accounts, which may comprise a mixture of income, capital gains and clean capital. This is however a time-limited provision expiring on 5 April 2019.
The new rules are complex and, from our experience, the process itself can be time consuming. It is therefore important to take advice as soon as possible to ensure that any transfers made from a mixed fund achieve the desired tax outcome in advance of the deadline.
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 2014/15 will need to consider making an election by 5 April 2019.
Following the introduction of Non Resident Capital Gains Tax (NRCGT) in 2015, which brought into charge gains realised on the disposal of directly held residential property, the scope of this tax is further extended from April 2019.
Not only will gains on directly held non-residential property become taxable from April 2019 (limited to the increase in value from that date only), but also gains in respect of indirectly held UK property will also become subject to NRCGT from that date. These new rules 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.
This further change to the application of NRCGT for UK property ownership adds yet another new UK tax cost which, in most cases, will not have been foreseeable at the time the investment was made. A review of UK property interests held by non-residents should be undertaken to ensure that the effect of these new tax changes has been taken into account when assessing the suitability of the investment.
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.