View along a bridge.

Tax facts: Resident and non-domiciled individuals

Tom Elliott
View along a bridge.
The position for tax-resident and non-domiciled individuals is now much clearer.

Below we outline five important things that should be considered pre-5 April 2018 to allow non-doms to protect their position and manage their exposure to UK tax.

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 becomes UK tax resident. This is so that the individual understands 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 2018.

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 2017 in order to can manage time in and outside the UK between now and 5 April to protect the desired position.

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 effectively 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 2018 should consider:

  • leaving the UK before 6 April 2018
  • 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. Those who have not paid the RBC may be able to pay the RBC for an earlier year in order to take advantage of the rebasing opportunity.

Segregation of mixed funds

Under a new government provision, 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 extremely complicated and 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.

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 2013/14 will need to consider making an election by 5 April 2018.

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

Tom Elliott
Tom Elliott
Partner, Head of London Private Clients