The 2017 UK Tax Changes: Dropped Or Deferred?


The 2017 UK Tax Changes: Dropped Or Deferred?

A confusing time for UK expats – first Brexit and now the sudden announcement that proposed tax changes for non-domiciled UK residents has been dropped. What should you expect?

Published on 23 May 2017

In April this year, non-domiciled UK residents (non-doms) were in for a surprise as some anticipated tax changes did not take place due to the Snap General Elections. Needless to say, the sudden announcement has caused confusion among those affected as many are wondering if the UK tax changes will still be implemented – albeit at a later date – or if they will be dropped altogether. Tax advisor Rawlinson & Hunter sheds some clarity on the matter.

An overview

The proposed changes covered two things – namely the Remittance Basis and Inheritance Tax (IHT). In short:

  1. Anyone born in the UK with a UK domicile of origin (defined as a Formerly Domiciled Resident or FDR), who is UK resident in a tax year will be deemed domiciled in the UK for all tax purposes (subject to a period of grace for IHT if the individual was not UK resident in either of the preceding two tax years).
  2. A long-term resident – one who has been UK resident in at least 15 of the immediately preceding 20 tax years – will be deemed domiciled for all tax purposes.
  3. The scope of IHT will be extended so as to apply to:
  • UK residential property owned by foreign domiciliaries (or trusts settled by foreign domiciliaries) through a foreign company or partnership;
  • relevant loans (broadly a loan where the funds are used for the acquisition, maintenance or enhancement of an interest in UK residential property); and
  • collateral on the relevant loan.

What happens next?

Although nothing is certain at this stage, Rawlinson & Hunter believes that the most likely outcome is that a Finance Act (No. 2) 2017 will be announced in the second half of this year to reinstate all the provisions relating to foreign domiciliaries with effect from 6 April 2017 – but perhaps with a few technical amendments that will hopefully improve the legislation.

The firm believes that the less likely possibilities are:

  • Deferring the provisions until Finance Act 2018, with them being effective from 6 April 2018.
  • Dropping the provisions entirely – though this is only likely if a different government comes in after the General Election, in which the position would be altogether more unpredictable.

How will this affect you?

According to the firm, the most likely outcome is that all previously anticipated changes will still be effective from 6 April 2017. In that event, there would be no actual impact – except for the uncertainty now until the position is clarified later in the year.

The bottom line

The announcement of a Snap General Election was a surprise in general terms but – given the uncertainty for affected taxpayers – it was not expected that the provisions for foreign domiciliaries would be dropped. Hence, the announcement that every single provision was being dropped was a bolt from the blue.

However, this will provide time for Parliamentary scrutiny – which is to be applauded. Until a clearer picture is painted on this matter, speak to a UK tax specialist such as Rawlinson and Hunter to find out more on how the latest update affects your wealth.