UK confirms non-dom reforms as 2017 Finance Bill goes live
Long-standing plans to change the non-dom taxation system in the UK, that was originally scheduled to go live in April, have now been rubber stamped by HM Treasury and will be implemented “as soon as possible”.
The UK government has today made an announcement that it will legislate for all policies that were included in the pre-election Finance Bill, including those to do with deemed domicile and enveloped dwellings.
Under current rules an individual becomes deemed domicile in the UK for tax purposes if they have spent 17 out of the last 20 years in the UK. The finance bill was expected to reduce the time-spent in the UK to 15 years out of the last 20. This change was placed on hold before the election but will now go ahead.
The UK government will also press ahead with changes that mean a non-domicile who holds property in the UK from 6 April 2017 through an overseas corporate structure (commonly known as enveloped dwellings) will now be subject to IHT on the value.
The changes, along with many other policies in the Finance Bill 2017, were indefinitely shelved in the run up to the general election on 8 June, leading, as reported, to criticism from financial advisers and commentators. Many advisers across the world that were left in limbo with ambiguity on the matters.
“The Finance Bill introduced in March 2017 provided for a number of changes to tax legislation that were withdrawn from the bill after the calling of the general election,” the Treasury statement said.
“The then-financial secretary to the Treasury confirmed at the point they were withdrawn that there was no policy change and that these provisions would be legislated for at the first opportunity in the new parliament.
“The government confirms that intention. It expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions. Where policies have been announced as applying from the start of the 2017-18 tax year or other point before the introduction of the forthcoming finance bill, there is no change of policy and these dates of application will be retained.
“Those affected by the provisions should continue to assume that they will apply as originally announced,” the statement concluded.
Rachael Griffin, (pictured left), financial planning expert, Old Mutual Wealth, said: “The ambiguity over these measures will undoubtedly have created confusion and uncertainty for many people – both inside and outside the UK.
“Both the deemed domicile and enveloped dwellings reforms placed on hold before the election were measures that people will have planned for in advance. Many people will already have made preparations before the Finance Bill was pared back, so for a lot of people this will simply mean that the plans they had already put in place were worthwhile after all.
“New clauses have been added to the domicile changes that have made some small amendments, however these are technical changes and the basic principle remains the same.
“Those who have not put plans in place to address any inheritance tax (IHT) liability while they were waiting for clarity should now press ahead with their plans,” Griffin concluded.
Other measures that were delayed but will now be implemented, include changes the money purchase annual allowance (MPAA).
This means savers who have accessed their pension from age 55 will see their annual tax-free allowance cut from £10,000 to £4,000 for the 2017/18 tax year.
Tom Selby, senior analyst at AJ Bell, (pictured left), called today’s “a bitter blow” to thousands of retirees who have used the pension freedoms to access some of their retirement pot from age 55.
“Many had hoped the general election would put a legal spanner in the works and force policymakers to, at the very least, delay reducing the MPAA until April 2018, said Selby. These hopes have now been dashed by the UK government.
“We do at least have clarity on what the MPAA is for 2017/18, which means advisers and individuals can plan with a degree of certainty.
“But the reality is the UK pension tax regime is a mess, bedevilled by complexity and confusing even to seasoned industry experts. Rather than continuing to tinker with a broken system, the government should carry out a root and branch review aimed at simplifying the rules and encouraging more people to save for retirement,” Selby added.