Non-domiciled residents have just days to act before the UK government closes a ‘cleansing funds’ scheme that was introduced following changes to non-dom rules.
In 2017, the government determined that people who had been UK tax resident for more than 15 out of the previous 20 tax years would be treated as domiciled for all UK tax purposes.
Following which, they can no longer make a claim to be taxed on the remittance basis.
Making money clean again
To help those affected, the government introduced a two-year scheme to help ‘cleanse mixed funds’, which is set to close at the end of the 2018/2019 tax year.
Meaning next Friday.
Mixed funds arise when, for example, an overseas bank account receives money from more than one source, and which could contain untaxed unremitted income, capital gains or clean non-taxable funds.
The cleansing scheme has enabled people who were subject to the remittance basis before 2017 to separate their mixed funds and hold them in separate accounts.
By doing so, they can bring ‘clean’ capital to the UK without suffering tax.
Caught in the net
Neil Jones, wealth management and tax specialist at Canada Life, said: “Time is ticking away. The opportunity for clients to transition their tax status with government assistance is almost gone.
“To get the tax benefits, on say excluded property trusts or international bonds, clients need to use completely cleansed funds or they will potentially end up paying unnecessary tax.
“Advisers may also need to keep a close eye on how long their clients have been in the country, as each year a new tranche of high net worths will be caught by the deemed domiciled rules.”
