“It feels like this new legislation is being rushed through,” said Dean Mullaly, managing director of Mark Dean Wealth Management, suggesting the detail included in the proposed legislation is “thin on the ground”.
Senior industry figures agreed that the paper is light on detail, and also expressed their disappointment with the Treasury’s decision to reduce the consultation period, particularly given the extent of the changes.
The document, published on Wednesday, revealed that long-standing offshore trusts – set up by non-doms before they acquired UK-domicile status – would be exempt from the government’s plans to toughen up its tax restrictions on non-dom individuals.
This, Mullaly argued, is a sensible move: “Defining what was original capital or income would be a nightmare, and many of these trusts were legitimately set up while the individual was a non-dom.
“These people prudently planned around tax legislation in force at the time and have no doubt paid a lot of money in fees,” he said, adding that it would be unfair to move the goalposts.
Managing director of Trident Tax Alan Kennedy agreed, saying this rule is a “sensible compromise” to encourage non-doms to remain in the UK.
However, he said it’s important to be aware that this compromise won’t apply to UK-born individuals who acquired a domicile of choice overseas before deciding to return to the British Isles.
“For those people that the government regards as ‘boomerang’ non-doms, their UK domicile of origin will revive as soon as they become a UK tax resident again,” Kennedy said, meaning they would have no protection from UK tax on any offshore trusts they set up when they acquired non-UK domicile status.
“The effect of this is that all income and gains of the trust will be taxable on an arising basis if the settlor who is returning to the UK is regarded as having retained an interest in the trust.”
Ray McCann, partner at New Quadrant Partners, said it was inevitable there would be “significant grandfathering” in relation to trusts.
However, he also argued the consultation “goes into reverse” where it affects the treatment of UK-born individuals who have since acquired a foreign domicile.
“If the rules are introduced as proposed, they will require so many caveats to make them operate at anything like sensible and fair, which will most likely be unworkable for both advisers and HMRC,” McCann said.
“Where an individual has genuinely relinquished their historical UK connection (accident of birth) they should be treated in the same way as anyone else if they come back to the UK.”