The release of new Government proposals last month confirmed that, from 5 April 2017, long-term UK resident non-doms will be subject to UK tax on worldwide income and gains.
The plans, while hotly debated by the private client advisory industry, were welcomed by some for providing a degree of clarity after a prolonged period of silence from the Government. However, with a consultation period until 20 October now underway, practitioners and their clients will have to wait until after that date before there is greater clarity on the detail.
KPMG private client partner Mike Walker has spoken of his disappointment in the 13 month delay since the general plans for non-doms were first announced by former Chancellor George Osborne in July 2015, and has urged practitioners to start assessing their clients’ histories now, in order to hit the ground running once the draft legislation is published in full.
He said that advisers would need to be particularly diligent in finding out how long clients have been tax resident in the UK, in order to know when they tick over into being deemed UK domiciled.
The Government has announced that residence will be measured against the ‘old’ case law on residence until 5 April 2013 and the ‘new’ statutory residence test, which has been in place since then. Advisers will also need to fully understand their clients’ global investment portfolios, banking arrangements and so on.
Offshore income and gains were previously only taxable on the remittance basis, so it was only remittances to the UK that needed to be known for compliance purposes. That will no longer be the case.
“These changes are clearly not going away. The tone in the Government\'s consultation document says that these changes ‘will’ happen, so now it\'s the job of the adviser to know their client in greater depth than ever before”, Mr Walker told eprivateclient.
He said that KPMG has begun training more staff to cover non-dom work in the lead up to April 2017.
“Professional services firms could be swamped. We have started signing up clients (doing KYC checks etc.) without detailed engagement terms so we are ready to refine the terms and start advising as soon as we have all the legislation.”
Banks, too, may come under pressure to act quickly in the lead up to 5 April 2017. Non-doms will most likely need separate pre- and post- 5 April 2017 accounts. With it taking several weeks to open accounts in some cases, banks will need to start work in the new year, if not before, Mr Walker said.
An initial consultation document was published in September 2015. A second consultation document was somewhat delayed until August this year, mainly due to the EU referendum. Mr Walker said Britain’s decision to leave the European Union had “bizarrely little” impact on the thinking of his increasingly international client base, but the firm has seen a steady stream of enquiries from clients looking to become non-residents since the plans for non-doms were first announced last year.
At a time when the UK is looking harder for untapped sources of investment in the UK economy, Mr Walker said the UK Government should be wary of the line it takes with non-doms, who are generally considered to contribute heavily to the UK economy.
He therefore welcomed proposals to extend Business Investment Relief, making it easier for remittance basis non-doms to invest their foreign income and gains in businesses in the UK. To date, over £1.5 billion has been invested in UK businesses under the scheme, but it is considered that this is a relatively small sum in comparison to the overall wealth held offshore by non-doms.
“We see a lot of clients looking to buy and invest in businesses, which is hugely beneficial to the UK - particularly in a post-Brexit era. The limits to Business Investment Relief are currently very narrow, and we’re not sure why. It is an obvious source of investment, which is relatively untapped, so we’re backing the proposals to extend.”