The Budget introduced a new Capital Gains Tax (CGT) ‘exemption’ for assets held overseas by non-UK domiciles. The detail is not yet known, but it will potentially impact all non-UK domiciles that become deemed UK domiciled for tax purposes on or after 6 April 2017. Rather than being liable to UK CGT on the entire gain from the disposal of an overseas asset, they could instead only be liable to UK CGT on any gain since 6 April 2017.
This rebasing of CGT as at 6 April 2017 is potentially good news for non-UK domiciles. It means any gain on assets they hold overseas will be protected up to 6 April 2017 once they become deemed UK domiciled. This could take pressure off non-domiciles who were considering disposing of their overseas assets before they become UK domiciled, and could mean they pay thousands less in tax.
Currently, non-UK domiciles living in the UK have two options when it comes to paying tax on overseas income and gains. They can pay UK tax as and when the liability arises, or they can choose to be taxed, under the ‘remittance basis’ i.e. only taxable if the gain is brought to the UK. If they chose the remittance basis they have to pay a tiered ‘remittance basis charge’.
Non-UK domiciles who currently use the remittance basis are not liable to CGT in the UK on the disposal of overseas assets, which is why many may be considering disposing of overseas assets now before they become deemed UK domiciled. This new proposal will mean they may no longer need to do this as all gains up until 6 April 2017 may be exempt from CGT anyway.
Non-UK domiciles who do not use the remittance basis, and pay UK tax as and when the liability arises on an overseas disposal may be better off holding on to their overseas assets until after they become deemed UK domiciled (provided this is after 6 April 2017), as any gain up until 6 April 2017 will be exempt, and they could save thousand in tax on disposal.
The dilemma many non-UK domiciles will face is whether to take action based upon the proposed CGT change announced in the budget, or wait until more detail is known later in the year in the consultation paper. Even after the consultation, nothing will be set in stone until the Finance Bill 2017, which may not come out until Q1 2017, by which point, any non-UK domiciles who are approaching being in the UK for 15 out of 20 years will have a very limited time in which to take action. This could be an issue if they suddenly need to sell their overseas property before they become deemed UK domiciled.
Rachael Griffin, financial planning expert, Old Mutual Wealth:
“The Budget has potentially delivered a real boost to non-UK domiciles holding assets overseas, especially those who have invested in overseas property and built up substantial gains over the years. They may no longer need to worry about disposing of their overseas asset before they become UK domiciled, helping them make the right long-term financial decisions. The CGT rebasing is effectively a way to make staying in the UK more equitable for non-domiciles sitting on large gains from overseas assets. Non-UK domiciles will need to stay on top of any changes being proposed, and be prepared to act quickly if changes are made, especially if they have been in the UK for 15 out of 20 tax years”.