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Important tax changes for non-doms


Significant changes affecting the UK tax status of non-domiciled individuals (non-doms) take effect on 6 April 2017 – and have far-reaching consequences for the majority of those who have previously enjoyed the tax breaks associated with non-dom status, regardless of whether they were initially born overseas or in the UK.

The remittance basis and the new 15/20-year rule

Under the new changes, non-domiciled individuals who have been a resident in the UK for 15 of the past 20 financial years will now be considered domiciled in the UK for all associated tax purposes, regardless of when they arrived.

This legislative change, known as ‘the 15/20-year rule’ effectively means that such individuals will no longer be entitled to claim the remittance basis for Income Tax or Capital Gains Tax (CGT) purposes. This means that those affected will be subject to UK tax on their worldwide income and gains.

Furthermore, for those who previously had a domicile of origin in the UK and later moved abroad, thus acquiring a domicile elsewhere, their UK domiciled status will be immediately reinstated if they return to the UK.

Non-doms’ residential property subject to UK Inheritance Tax

As of 6 April 2017, non-doms who hold UK residential property indirectly through an overseas intermediary, such as an offshore trust, will see such properties subject to UK Inheritance Tax (IHT).

Previously, residential property held in such structures would be overlooked as ‘excluded’, but under the new rules, such property – however held – will be within the scope of IHT. This means that UK IHT will be payable upon any significant IHT event, including a death, gift or ten year anniversary of a trust.

Grace period for ‘mixed funds’

Non-doms with offshore funds made up of untaxed foreign income and gains will be granted a grace period of two years from April 2017’ to rearrange these mixed funds, sell any assets and separate any funds into their constituent parts of foreign income, foreign gains and clean capital. The latter can then be remitted from their segregated clean capital account in line with previous rules.

This gives an opportunity for people to reorganise their affairs to benefit more from the remittance basis where this is still available, or where it has been used previously, as those old unremitted monies remain liable to UK tax under the remittance basis, even if they are now subject to tax on an arising basis.

Under these rules, excluded property trusts can be used as an important planning tool as they will remain an effective way of sheltering assets from UK Inheritance Tax before an individual becomes domicile.

This will also apply to those who are newly ‘deemed domiciled’ under the 15/20-year rule.

If you are concerned that these important changes to the taxation of non-doms are likely to affect you, please contact us. If you are able to get in touch sooner rather than later, our experts can determine the wider implications of these tax changes, how you will be personally affected and how we might be able to help you to mitigate any potentially heavy tax charges.

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Is 2025 your year to incorporate? Here are our top tips

January 16th, 2025

Nearly 900,000 companies were incorporated in 2024 – an 11.2 per cent increase compared to 2023. More entrepreneurs are recognising the benefits of limited companies.

The advantages of limited companies include limited personal liability, mitigated taxation and greater exposure to investment opportunities.

To help you start your journey towards limited company status, here are our top tips:

Research

Taking the first steps towards incorporation should not be taken lightly. Whilst it limits liability if things go wrong, it does come with some strict compliance requirements in regard to regular reporting to Companies House, which you need to prepare for.

Paying yourself

As a director, you can pay yourself via salary, dividends, or both to maximise your take-home pay.

The most efficient approach is often to pay yourself a lower salary, so you are not liable for Income Tax or National Insurance Contributions (NICs), but still contribute enough towards your state pension, and take the rest as dividends, which is subject to a lower tax rate.

Be aware that it may not always be possible to pay a dividend if your profits aren’t sufficient.

Structuring your company

When considering the distribution and management of share rights in a limited company, several key aspects must be carefully planned and managed. You will need to define how dividends are paid, voting rights and share structure.

At this stage, you may also need to discuss a future exit, including transfer, drag-along and tag-along rights.

As part of this process, you will need to address how the shares and shareholder rights align with the company’s Articles of Association.

Open a business bank account

Open a separate bank account for your business as soon as possible. Some founders make the mistake of thinking they can mix personal and business finances at the beginning, but it makes applying for reliefs and paying taxes more complicated as you have to declare what each transaction is for and when it was made.

Treat your business like a separate entity (because it is)

If you plan to inject personal funds into your company or take money out, do it properly through a Director’s Loan Account.

Make sure to detail each transaction going in and out of the business and never take out excessive amounts of money, as this can attract attention from HM Revenue & Customs (HMRC) and lead to fines.

If you are considering incorporation, you should seek professional advice and ongoing support to reduce the potential for errors and non-compliance with Companies House regulations.

Ready to take the next step? Contact us today for expert advice on incorporating your business.

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