Options for non-doms going forward

In terms of the impact of these changes, Gordon Dadds’ Mr Harding says it is “a matter of fact” that many non-doms contribute significantly already to the UK economy.

Figures for 2012 to 2013 show that non-doms paying the ‘remittance basis charge’ amounted to less than 0.2 per cent of the taxpayers in the UK, yet their collective contribution in terms of tax and national insurance on UK income, foreign remittances and the ‘remittance basis charge’, amounted to £8.27bn.

This is almost 4 per cent of the total UK income tax take, Mr Harding points out.

Chancellor George Osborne ending permanent non-dom status for some, who are settled and have made the UK a permanent home, will be seen as an additional cost to be borne.

For others, especially the more internationally mobile, Mr Harding says it may well be the final push they need to leave these shores permanently.

Mr Harding says: “Just how much of an impact this will have on the figures above remains to be seen, but the chancellor has taken a significant gamble that the majority will stay and pay.”

Rachael Griffin, financial planning expert at Old Mutual Wealth, says those approaching or exceeding the 15 years will have until 6 April 2017 to make alternative plans or be deemed domicile for UK tax purposes and lose the option to choose the remittance basis of taxation.

She says there will be some non-doms who have been in the UK for 13 years, and thought they had a further four years before they needed to leave the county or start paying tax on their worldwide assets.

These people now have less than two years to make that decision, she points out.

Ms Griffin says: “Non-doms can continue to choose the remittance charge basis while they fall within the 15 year rule, and at present, there are no changes to the amount non-doms will pay under the remittance charge basis.

“Once someone becomes UK domiciled, and they then leave the UK, their UK domicile status will stay with them for five years, rather than the current four years. This is likely only to be relevant for inheritance tax purposes.”

Roger Harding, tax director at Gordon Dadds, says there is of course the option to re-start the 15 year clock by becoming and remaining non-resident for six tax years.

Mr Harding says this may not be practical for those with significant UK assets and business interests.

Neil Walker, global head of tax at deVere Tax Consultancy, adds many of the options for non-domicile individuals who will have been in the UK for 15 years or more will be less drastic than relocating outside of the UK, and may involve the use of a trust or examining the tax implications of changing the nature of the assets they own.

Mr Walker says: “A good tax adviser will conduct an analysis of the potential tax savings versus the cost of advice and running a trust, etc, while explaining the implications of any future legislative changes.

“Tax advisers are generally not authorised to comment on investment returns, but this is an additional factor which clients will need to consider and there is very rarely a one size fits all solution.”

As a result of the changes outlined in the summer Budget our experts predicted the use of offshore trusts will become far more prevalent for the majority of non-doms.

So far Gordon Dadds’ Mr Harding says it appears a non-dom will not be taxed on income tax and CGT of an offshore trust established before the 15-year point is reached.

Therefore he says it appears there is an open invite for non-doms to set up offshore trusts to hold non-UK assets.

Mr Harding says: “It should be borne in mind however, that by placing assets into such vehicles, control is relinquished and passed to trustees who control how, when and to whom income and assets are distributed.

“Technical consultation on the new measures will be released later this year and so it would be advisable to review this before making any snap decisions.

“Generally it is far easier to set thing up tax efficiently than it is to unwind them when they no longer work.”

However Mr Harding says straightforward steps can be taken now, for example, where perhaps a spouse is non- resident overseas assets could be easily transferred to them.

Mr Harding says: “Offshore trusts may be suitable for many and should therefore be set up before deemed domicile status is reached, which could be well before 6 April 2017.”

For inheritance tax mitigation, Neil Jones, technical manager at Canada Life, recommends advisers look at the excluded property trust, which can allow non-doms to shelter wealth from UK inheritance tax before they fall foul of the deemed domicile rule.

He says this could hold offshore bonds or any collectives, including UK collectives, as long as it is set up before the individual becomes deemed domicile in the UK.

They can still benefit from the trust – although Mr Jones notes any assets brought back into the UK would be liable for IHT when they die.

For income tax, again Mr Jones points towards offshore bonds being considered as they can provide tax efficient income providing that capital is used rather than unremitted income.

Mr Jones says non-doms and their advisers can make use of the annual 5 per cent tax deferred allowance and these are not classed as remittances.

Old Mutual’s Ms Griffin says offshore bonds should increase in popularity because essentially the vehicle defers any income tax and capital gains tax liability until the bond is encashed, so there is no tax to declare on an annual basis.

Canada Life’s Mr Jones says advisers should also probe whether their non-doms are currently using companies to own/hold UK property in order to avoid any liability to inheritance tax.

He says this has become a focus for HMRC over the last few years as they introduced the annual tax on enveloped dwellings and this increased significantly in April.

Mr Jones says HMRC want to make sure that this type of ownership won’t avoid the payment of UK inheritance tax.

He says: “One solution would be to resort to private ownership and then put in place life assurance under a suitable trust - this could be more cost-effective than paying the annual tax on enveloped dwellings.”