Early in July, the UK government offered some clarity about what will happen to its proposed changes to foreign domiciliaries, which were dropped from the Finance (No.2) Bill 2017 in the rush to pass legislation prior to this year’s general election.
Following the election and the Queen’s Speech, a Ministerial Statement announced that, after the summer recess, everything that did not make it into the eventual Finance Act 2017 would be reintroduced in a second Finance Bill 2017.
Briefly, the main changes are:
- If a person is born in the UK with a UK domicile of origin, and is resident in the UK during a tax year, he or she will be considered to be domiciled in the UK for all tax purposes.
- Anyone who has been resident in the UK for at least 15 of the previous 20 tax years will be judged to be a long-term resident and domiciled in the UK for all of his/her tax purposes.
- Inheritance tax will be extended to cover:
- any UK residential property owned by foreign domiciliaries via a non-UK company or partnership;
- any UK trust settled by foreign domiciliaries via a non-UK company or partnership; and
- a loan, if the funds are used for the acquisition, maintenance or enhancement of an interest in UK residential property, as well as the collateral on such a loan.
Reliefs and protections
In addition, the government plans to introduce several accompanying reliefs and protections, including:
- Capital gains tax (CGT) rebasing relief on assets held directly by individuals applying to income gains from non-reporting funds, as well as on capital gains on foreign assets.
- A cleansing relief for individuals who have been remittance basis users in at least one tax year between 2008/2009 and 2016/2017 with mixed-fund bank accounts. This measure excludes formerly domiciled residents.
- The protection of settlor-interested trusts, as long as the settlor is a long-term resident of the UK, through the continued disapplication of the capital gains tax anti-avoidance provision that would otherwise have levied a charge on the trust’s foreign income.
- A small number of relaxations to Business Investment Relief.
The government has stated that there are no plans to alter the implementation dates of any of the measures. If they are passed, they will represent the most significant set of changes to the rules regarding foreign domiciliaries since 2008.
Given that Parliament does not return until 5 September, rising on 14 September for the party conference season, it is unlikely that MPs will be able to properly debate the second Finance Bill 2017 before October. If so, the legislation would likely receive Royal Assent in late November – at the earliest.
Given the limited time MPs will have to debate and pass the Bill, and the important changes it will bring, STEP will carefully monitor developments as they happen, and provide updates on the legislation’s progress.