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Finance

GOVERNMENT ANNOUNCES RE-INTRODUCTION OF PROPOSED FINANCE BILL

GOVERNMENT ANNOUNCES RE-INTRODUCTION OF PROPOSED FINANCE BILL

Finance Bill Will Affect Non-Dom Tax Status And Inheritance Tax Laws

The Treasury has announced the introduction of a second Finance Bill for 2017 which will change the tax regime for non-domiciled individuals and ‘enveloped’ residential property and implement the new ‘Making Tax Digital’ scheme.

The Government confirmed its intention to push the Finance Bill through Parliament “as soon as possible” after the summer recess but the changes to the non-dom rules and residential property taxation will have effect from 6 April 2017 – effectively backdating them.

The measures in the Finance Bill will significantly change the UK tax regime for non-domiciled individuals, including treating those have lived in the UK for 15 of the last 20 years as deemed domiciled. This would be a considerable change from previous legislation, which allowed non-doms to use the remittance basis indefinitely.

The Bill will also radically alter the UK tax treatment of ‘formerly domiciled residents’: those who were originally UK domiciled but moved abroad to make their permanent home in another country and are UK resident in the short term, such as a work secondment.  While they remain non-UK domiciled for all other purposes, they will be treated as UK domiciled for tax purposes while UK resident.

In relation to Inheritance Tax, UK residential property held through a non-UK corporate entity owned by a non-dom or certain types of trust were formerly protected from inheritance tax.  With effect from 6 April 2017, this has stopped: the shares will be treated as UK inheritance taxable assets, as will loans and security for loans used to buy UK residential property.

Another major measure in the Bill is the introduction of Making Tax Digital, which proposes a modern system for businesses to keep their tax records as well as report to HMRC. Following criticism on the original proposals, the new system will not be mandatory: businesses will not have to use the new system being introduced until April 2019, where they will then only need to meet VAT tax obligations providing they are above the current VAT threshold.

After months of speculation following the future of the proposed Finance Bill, the Treasury’s announcement comes as a welcome one. Irwin Mitchell Private Wealth recommends that those most affected by the proposed Bill should seek legal and financial advice at the earliest instance to ensure they can safeguard their private wealth.

Alex Ruffel, tax expert and Partner in the Irwin Mitchell Private Wealth team, commented: “We are very glad to finally have some clarity after three months of uncertainty as to whether, when and in what form the changes to the taxation of long-term UK resident non-doms and taxation of UK residential property would be reintroduced.

“The backdating of the effect of the new legislation to 6th April 2017 will be welcomed by non-doms who took steps to utilise rebasing relief and plan for the mixed fund rules in reliance upon the original Finance Bill.  However, there may be others who acted in reliance upon the current law who will face tax liabilities as a result.

“There are also some interesting practical questions. For example, if a trust appointed shares in a non-UK company owning UK residential property on 7 April 2017 will they have any leeway on time limits for submission of an inheritance tax account, given that it was not clear whether one was needed until over three months later?

“The announcement from the Treasury acts as a great starting point, but should be treated as such.Irwin Mitchell Private Wealth looks forward to further clarification over the finer points of the proposed Finance Bill.”

Global Banking & Finance Review

 

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