Tougher restrictions for non-domiciles beyond those already announced in the summer Budget are set to come in following the non-domicile consultation paper which was published yesterday (30 September).
Once someone becomes UK domiciled, the tougher restrictions will make it harder for a person to lose their UK domiciled status after they leave the country.
At present, if a non-dom has been in the UK for 17 out of 20 years, they become liable to UK inheritance tax on their worldwide assets.
Under current rules, if they leave the UK and die within three years of leaving, the estate will still be liable to UK inheritance on their worldwide assets.
However, under new proposals put forward in the consultation, the 17 out of 20 years reduces to 15 out of 20 and the three year inheritance tax tail has been increased to at least six years.
According to the new proposals, people will not lose their UK domicile status until “the later of the date that they acquire a domicile of choice in another country, or the point when they have not been resident in the UK for six years”, meaning that the IHT tail could be much longer depending on how quickly they acquire another domicile of choice.
Additionally, the tougher restrictions will make it harder for non-dom spouses electing to be UK domicile to lose the UK domicile status once they leave the country.
At present, under legislation introduced in 2013, a non-dom spouse, of someone who is UK domiciled, can elect to become UK domiciled, making it possible for estates to be passed between spouses completely free of IHT.
Once the spouse becomes UK domiciled that decision is irreversible whilst they live in the UK.
At the moment, if they leave the UK they remain UK domiciled for 4 tax years. However, under these new proposals, the four year time frame will increase to six years.
The new proposals demonstrate the government are taking a tougher stance both on non-domiciles and on UK expats returning to the UK.
“Non-domiciles who have been in the UK for 15 or more years out of 20 need to make alternative plans or be deemed domicile for UK IHT purposes and lose the option to choose the remittance basis of taxation.
“The increase in the time it takes to lose the UK domiciled status is also a key consideration as anyone who dies within six years of leaving the UK will suffer IHT on their worldwide assets.
“Those born in the UK, but have been domiciled in another country, also need to ensure they seek financial advice before they return to the UK.
There are plenty of alternatives for non-doms if they are not able to claim the remittance basis anymore or just hate paying the annual remittance basis charge to HMRC.
Deferring liability to income tax whilst you are a UK resident might be an alternative strategy, as opposed to paying the remittance basis charge each tax year. There are several vehicles available that would allow a non-dom to fall under the arising basis of tax whilst deferring any tax on offshore savings/investments held offshore until such time as they move to another country with a lower or more favourable tax regime.
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