Finance (No. 2) Act 2017 received Royal Assent on 16 November 2017 and became law at that time.
This is backdated to take effect from 6 April 2017 and brings into effect the previously delayed sweeping changes to the taxation of long-term non-UK domiciliaries (Non-Doms), as well as major changes to the taxation of trusts.
We have previously described these significant changes, but by way of reminder these include the deemed domicile rules for income tax, capital gains tax and inheritance tax for non-doms who have been resident for 15 out of the previous 20 years, or for ‘returning UK doms’. The legislation also provides for anti-avoidance legislation in respect to inheritance tax on UK residential property owned through offshore entities including both companies and partnerships as well as related finance structures including loan collateral.
Offshore trusts set up by a non-dom settlor will now enjoy certain protections such that the settlor will only suffer income and capital gains tax if trust benefits are received by the settlor or close family members. These protections will be lost though if further property or value is added to the trust after the settlor becomes deemed domiciled.
Individuals should therefore be considering what actions they can take. Some individuals (those who became deemed domiciled for income and capital gains on 6 April 17) will be able to rebase certain foreign assets and will need to consider whether they now wish to sell in the knowledge that the ability to rebase is now confirmed. More widely clients may want to consider whether to make use of the special ‘cleansing rules’ for mixed funds (available until 5 April 2019). Further HMRC guidance is expected on these issues but we have an excellent awareness of how HMRC intend these rules to work and hence clients should not feel they have to delay until guidance is published.
Trustees should be reviewing UK residential property-owning structures; ensuring that there are procedures in place to prevent protected trusts from becoming tainted; and reviewing any on-going benefits received from offshore trusts.
In addition, the legislation also introduces the ‘requirement to correct’ (RTC) which means that individuals with an offshore element to their world will need to ensure that their historic reporting is correct otherwise after 30 September 2018 any errors reported to, or found by HMRC can generate penalties between 200% and 300%. We have previously advised clients about this requirement and will be studying further the details introduced yesterday before commenting in detail.
If you have any questions on these issues, please contact your usual Frank Hirth contact