Shipowners likely to be affected by wide-ranging changes to the taxation of non-UK-domiciliaries introduced in the UK Summer Budget have been urged not to panic as the proposed changes are currently short on detail, and there is enough time to prepare for the planned implementation of the changes on April 6, 2017, an international accountant and shipping adviser Moore Stephens says.
What is known so far is that UK residents will be deemed domiciled for income tax and capital gains tax purposes after 15 years of residence, and will pay tax on their worldwide income and gains, according to Moore Stephens. This rule will also apply to inheritance tax. There is already a deemed domicile rule for inheritance tax but this applied where someone had been resident for more than 16 out of the previous 20 years of assessment.
There will be no grandfathering provisions, so these rules will apply regardless of when someone came to the UK. However, the old regime will continue to apply where someone leaves the UK before April 6, 2017. It will only be possible to break this deemed domicile status by ceasing to be resident in the UK for five tax years.
This means that the recently introduced GBP 90,000 remittance basis charge (RBC) for residence of more than 17 out of 20 tax years will not apply from 2017/18, as individuals will now be deemed domiciled at that point. The result is that the proposal to elect into the remittance basis for tranches of three years has been scrapped. The GBP 30,000 and GBP 60,000 RBC rates will still apply, says Moore Stephens.
The potential good news is that non-doms who have set up an offshore trust before they become deemed domiciled in the UK may not be taxed on trust income and gains that are retained in the trust, and the assets will remain outside the scope of inheritance tax (unless UK residential property). They could be taxed on trust distributions and benefits. However, there will be detailed consultation on the new rules as it is recognised that this will be a significant change to a complex area of law, says Moore Stephens.
It also seems that these rules do not affect an individual’s domicile status under general law, so an individual may continue to pass their non-domicile status on to their children.
”The UK government has repeatedly shown that it understands the important contribution made by the shipping industry to the UK economy, and there are indeed changes in the Summer Budget which will come as good news to the shipping and offshore sectors,” Gill Smith, a tax partner with Moore Stephens, said.
”UK corporation tax, for example, will reduce from 20 percent to 19 percent in 2017 and to 18 percent in 2020. The application of the basin-wide investment and cluster area allowances will also be widened in order to support investments on the UK Continental Shelf, and the definition of investment expenditure will be extended to include certain discretionary non-capital spend and long-term leasing of production units.”