In a technical briefing published by HM Revenue and Customs (HMRC) last week, the tax office said it has decided to hold back introducing proposals regarding the taxation of income and capital gains paid out of offshore trusts for non-UK domiciles who are in the process of becoming deemed domicile.
“Stakeholders were advised that where the legislation was incomplete or incorrect, the necessary amendments would be made no later than the date for the publication of the Finance Bill.
“However, it has not been possible to make all of these changes in time and consequently, the government has taken the view to defer publication of the provisions affected,” said the tax office.
HMRC added that further changes will be announced “in a future Finance Bill” but stopped short of specifying when.
An overhaul of the taxation of overseas trusts was as part of broader non-dom reforms, set to go live next week, which mean that non-UK domiciles who have resided in the country for more than 15 of the past 20 tax years will now automatically be deemed UK-domiciled.
Under the current system, non-doms living in the UK can choose between paying UK tax on all overseas income and gains as and when the liability arises or they can choose to be taxed under the remittance basis – whereby they will only be taxed if the gain is brought to the UK.
If they chose the remittance basis they have to pay a tiered remittance basis charge. Those using the remittance basis are not liable to pay CGT in the UK on the sale of overseas assets such as offshore trusts.
As a result, the Treasury originally proposed that from 6 April 2017 those newly deemed UK-domiciled would have to pay CGT on all future capital gains of the trust.
In December, HMRC agreed to water down the original proposal for fear of driving out wealth foreigners.
In draft regulation published that month, it announced that capital gains and foreign income will not be subject to UK tax where there are no payments out of certain qualifying trusts – known as ‘protected settlements’.
The tax authority also set out circumstances in which additions of property to a settlement by a deemed domiciled individual might taint that settlement such that capital gains and foreign income may be taxable on the settlor as it arises.
Rachael Griffin, personal financial planning expert at Old Mutual Wealth welcomed that postponement.
“This area of financial planning is extremely complex, and it is encouraging to see HMRC take more time to consider the detail rather than rush it through in this Finance Bill.
For non-doms potentially impacted by the proposed income and capital gains tax changes, this delay could leave them in limbo – as it is difficult to predict with any certainty what the final changes will be,” she told International Adviser.