Many Americans living in the UK are considered to be non-domiciled for UK inheritance tax purposes. Under new rules set to take effect in April this year, a non-domiciled individual becomes deemed domicile for inheritance tax purposes when they have been resident in the UK for more than 15 out of the last 20 years. When an individual is deemed domicile for UK inheritance tax purposes, the UK will generally apply its inheritance tax rules on an individual’s worldwide assets.
Ahead of the upcoming election, Labour has announced proposals to eliminate the non-dom tax status. Currently, non-UK domiciled individuals can generally live in the UK for the first 7 years and be taxed solely on their UK earnings and any remittances of funds brought into the UK. After 7 years, individuals who hold significant amounts of money overseas can choose to pay a remittance basis charge of either £30,000, £60,000 or £90,000 (depending on how long they have lived here) each year to avoid being taxed in the UK on a worldwide basis. Eliminating the non-dom tax status would likely mean that many non-dom individuals will need to pay UK tax on a worldwide basis soon after settling in the UK even if their stay is not intended to be permanent.
Our understanding is that under Labour proposals, no newly arriving persons will be able to claim non-dom status after April 2016 and existing non-doms would be provided a limited period of time to re-structure their wealth from a tax perspective. The proposal also outlines temporary exemptions for students and foreign workers seconded to the UK for a short period of time, probably two to three years.
Non-UK domiciled remittance basis taxpayers need to be aware of revised guidance recently issued by HMRC. Effective 4 August 2014, HMRC will take the position that foreign income and gains contained within a non-UK account will be considered a taxable remittance as soon as they are pledged as collateral for a loan used in the UK. This represents a change to its previous position which was that a loan used in the UK, secured against assets representing foreign income or gains, would not give rise to a taxable remittance, provided that the loan was “commercial” and it was “serviced.”