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About time

Following the long-awaited consultation on reforms to the taxation of non-doms, Kate Johnson issues a plea to the government to give practitioners the time to advise clients clearly in future

7 October 2016

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In July 2015, during the Summer Budget, the government announced that changes would be made
to the taxation of non-doms. These changes include a new ‘deemed domicile’ rule for all taxes after 15 years of UK tax residence, changes to the taxation of offshore trusts,
and the introduction of an inheritance tax charge for UK residential property held by offshore companies.

Further detail was included
in the technical briefing notes which accompanied the
Budget. In the case of the
new inheritance tax charge
for residential property, the briefing note acknowledged that in many cases there would be a tax charge incurred when removing these properties from such structures and suggested that some welcome relief might be provided.

For the other changes, the new rules were set out in brief. Consultations and legislation were to follow prior to the changes taking effect in
April 2017.

Plenty of time to advise clients and take any necessary action, or so you would be forgiven for thinking.

Unanswered questions

An initial consultation document was published in
late September 2015 but this did not cover all aspects of the changes and, on some of the aspects it did cover, raised more questions than answers.

In December 2015, most of the draft legislation for the 2016 Finance Bill was published but the majority of the non-dom changes were not included. We had to wait until February 2016 for further draft legislation,
but still this covered only some aspects of the reforms – not
to mention that there was still no sign of the long-promised consultation on the changes to the inheritance tax treatment
of UK residential property.

As the weeks, months, and seasons ticked by we continued to wait. Publication dates were promised then delayed on more than one occasion.

Meanwhile, since the first announcement last summer, clients have understandably been anxious to know the impact of the changes and to rearrange their affairs if necessary. But without the
full details it is difficult to
advise. Add to that the
post-EU referendum rumour that the changes were going
to be shelved or delayed to stimulate inward investment and you have the recipe for a perfect storm.

Welcome news

It was therefore with great relief that we received the news last month that a consultation had been published covering all of the outstanding matters, revisiting others, and setting out further draft legislation.

The changes are not going
to be shelved or even delayed, in part or in full. Unfortunately, relief for the potential tax charge when taking residential property out of offshore company structures will not
be available. But it is not all bad news. Some non-doms will be able to rebase capital assets, there will be an opportunity
to segregate mixed funds, and some offshore trusts (whose settlors will become deemed domiciled under the new rules on or after 6 April 2017) will benefit from a ‘protected’ status.

But, most importantly, we now have almost all the information needed to give clearer advice to our clients
and to start implementing the required planning. And not a minute too soon – with the autumn fast approaching, April 2017 will soon be upon us, so time is running out to complete any of the restructuring needed before the new rules take effect.

There is, you will note, still
the outcome of the current consultation and the final legislation to come, but thankfully, no significant amendments or additions
are expected.

Tax advisers accept that there will be regular amendments in the law (in fact, that is one of
the features which attracted
me to this speciality), and it is widely accepted that this is a very complex topic, so it is
only natural that finalising
and implementing new law takes time. But please, next time, give
us not just notice of the changes in good time but also the full details of how they will be effected, to allow us to provide our clients with the advice which they rely on us for.

Kate Johnson is an associate at Wedlake Bell @WedlakeBell

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