Budget 2016: expats, non-doms & deemed-doms

Now that the dust is settling, the winners and losers from Wednesday’s Budget are becoming more apparent. The losers, unequivocally, are teenagers – a sugary drinks tax, longer school hours and compulsory maths up to the age of 18. For expats and non-domiciles, George Osborne’s shiny red briefcase was a literal mixed bag. While expats who still own UK property will benefit from higher tax thresholds, they will also find themselves ineligible for the lower capital gains tax rates. Non-doms, meanwhile, should be aware of the criteria around a new taxable classification, ‘deemed-doms’; and anyone developing UK property will find their profits are henceforth subject to UK corporation tax. Here, we highlight the key points to take away from the budget for our across-the-pond clients.

Capital gains tax

Osborne has slashed both rates of capital gains tax, with the higher CGT down from 28% to 20%, and the basic rate down from 18% to 10%. There is one area, however, to be excluded from this benefit – and that’s residential property. Instead, existing rates are to be maintained, effectively meaning an 8 percentage point surcharge.

The reduction is therefore unlikely to benefit expats who have retained a UK property, especially if they are planning to sell it.

It’s not all bad news, however; there were no changes to the main residence relief that expats often find themselves eligible for.

Higher rate tax threshold

For the 2017-18 tax year, the higher rate tax band will rise from £43,000 to £45,000.

For any expats who rent out a UK property, this is very good news. Some will find their rental income now sneaks in below this threshold, giving them a handy cash injection.

Deemed-doms

In the Summer Budget, it was announced that non-doms who have been resident in the UK for 15 out of the past 20 years will become deemed-doms for tax purposes after 5^th April 2017. From this date, they will be taxable on their worldwide income and gains.

Anyone who was born in the UK, but subsequently obtained a foreign domicile before becoming tax resident in this country again, will now be known as a ‘boomerang non-dom’; and they will also be deemed UK-domiciled while tax resident in the UK.

The Chancellor has given confirmation that deemed-doms will not be subject to UK tax on income and gains held in an offshore trust established before the new deemed-dom category comes into effect.

In another surprise bonus for deemed-doms, the government has also confirmed that they can treat the base cost of personally-held foreign assets at market value (as of 6^th April 2017) for capital gains tax purposes. Only gains made and accumulated after this date will be taxable.

Crackdown on overseas developers

One of Osborne’s main targets was overseas property developers who move their profits abroad, thereby avoiding full UK tax.

The new legislation – aimed specifically at offshore companies and structure – ensures that any profits derived from developing residential or commercial property in this country will henceforth be subject to UK corporation tax.

A typical strategy for anyone looking to develop UK property was to set up an offshore company in Jersey, Guernsey or the Isle of Man, taking advantage of the Double Tax Treaties in place between these jurisdictions and the UK. In a major overhaul, these treaties have been amended with immediate effect.

If you have any questions about the Budget and how your property will be affected, please do get in touch. One of our specialist advisers will be more than happy to talk through your options with you.