This clarification confirms the intention of the Government to proceed with the announced reform of the RND taxation from the 6 April 2017, dropping the speculation that the Brexit result might have postponed or repealed the implementation of the amendments.
Key points:
1) 15/20 Rule – Confirmation of the “deemed domiciled” rule for all taxes (i.e. income, gains and IHT) for the RND who have been resident for 15 of the last 20 years. To break this “deemed domiciled” status for income and capital gain tax (CGT) purposes an individual will need to leave the UK for six consecutive tax years. This period abroad is reduced to four years for IHT purposes.
The £2,000 de-minimis rule will be maintained for RND even if deemed domiciled under the 15/20 rule
2) CGT Rebasing – RND considered deemed domiciled under the 15/20 rule and who have paid the remittance basis charge in any year before the April 2017 will be able to rebase directly held foreign assets to their market value on 5 April 2017. Gains accrued before April 2017 will be outside the scope of CGT. Any further increase in value from April 2017 to the date of disposal will be subject to CGT.
3) Taxation of offshore trusts – The consultation paper confirms that the RND settlor (or his wife and minor children) of an offshore trust, who is deemed domiciled under the 15/20 rule, will pay CGT on the capital payments from the trust irrespectively if the payment is received in the UK, to the extent that there are chargeable gains arising in that trust. In the same way if a the deemed-domiciled settlor, his spouse or minor children receive a distribution of income from the offshore trust, the distribution will be taxed in his hands regardless if the payment in received in the UK or abroad.
4) Mixed Funds relief – A concession is granted to RND to split their mixed funds overseas to enable them to separate out the different parts, by moving clean capital, foreign income and gains into separate accounts. After this reorganisation, they will be able to remit from their accounts overseas in a tax efficient way.
The rearrangement should be implemented within one year from April 2017.
5) IHT on residential properties – As anticipated, from April 2017 IHT will be levied on residential properties held by non-UK domiciled individuals through non-UK structure. Such offshore structures will therefore be considered transparent for IHT purposes. Unfortunately this change is not counter-balanced by a de-enveloping relief as suggested and expected by the professionals involved in the consultation.
