WHAT DO THE NEW ‘ CLEANSING ’ OPPORTUNITIES MEAN FOR NON-DOMS ?
The Draft Finance Bill 2017 includes opportunities that are specifically designed to encourage non-domiciled people to benefit in certain ways from switching to the arising basis of tax . A transitional window of opportunity exists between now and April 5th , 2019 ( for mixed funds ) and April 5th , 2019 ( for rebasing capital assets ) to take action .
What it includes :
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Mixed funds held offshore Overseas capital assets
UK resident , non-UK domiciled people who currently pay on the remittance basis and are resident in the UK *
(* not applicable to returning non-doms if they become UK residents again after the deadline )
Mixed Funds
These may comprise capital , income and capital gains , in an offshore bank account . The three elements are not currently separated out for reporting purposes , and may span differing time periods . At present , income and capital gains are regarded as being remitted before what is classed as the untaxed ‘ clean capital ’ and you are not allowed to divide them into separate accounts .
This can trap the capital and the holder ends up paying more tax than is necessary . Now , separating these elements may make sense again because of ‘ cleansing ’ which removes the mixing . If you are using the remittance tax basis ( or if you didn ’ t have to claim it because the income or gains were under £ 2000 , so the remittance basis applied automatically ) then this needs to be addressed .
You will have two tax years until 6 April 2019 in which to make this one-time change – and to do so you must switch the funds to a different unmixed account . In doing so , you can bring formerly trapped capital into the UK tax-free . We strongly advise that you seek our assistance in advising the most advantageous route for you . Not least because you need to correctly instruct your bank in writing and make sure that the nomination of the cleansing of funds is properly compliant with the new regulations .
Do not think that you automatically have over two years to deal with this . You may have investments that you would benefit from switching into a mixed fund as at 5th April so as to take advantage of tax-free clean capital .
Rebasing Capital Assets
This is a much more immediate matter and any action must be taken by 5th April 2017 . If you become ‘ deemed domiciled ’ on the following day by the ‘ 15 out of 20 year rule ’ ( that places long-term nondomiciled UK residents on the same tax footing as a normal UK taxpayer ) and you have paid tax on a remittance basis in any year , then you can opt to ‘ rebase ’ your capital assets abroad to the 5th April 2017 market valuation . This may have Capital Gains Tax advantages if your assets have gained in value : as in future you will only be liable for tax on the gain from 6th April onwards .
You can have the sale proceeds in the UK or abroad and still reap the benefit . It applies to gains that you have not so far realised , and only to assets in your name ( not through trusts or corporate structures ).
There is no specific need to make an election or registration , as rebasing will apply automatically on disposal . However you may wish to opt out , especially if the asset has declined in value to date – in which case you need to make an election . If you do want to opt out , you have 4 years after the tax year in which the disposal happens , in which to elect for nonrebasing ; and this cannot later be revoked .
This provision to rebase assets will no longer apply to people who become UK domiciled at a later date after 6th April 2017 .
Continued on the next page .