New provisions have allowed offshore assets to be ‘rebased’ from 5 April 2017. Certain individuals can segregate mixed funds in order to separate out non-taxable clean capital from other sources. This allows certain individuals, who have previously claimed the remittance basis, to remit this clean capital to the UK tax free.
How does it work for long term residents?
From 6 April 2017 individuals who have been resident in the UK for 15 of the last 20 years are deemed to be UK domiciled for the purposes of income tax, capital gains tax and inheritance tax. Please refer to our article ‘Residency Riddles’ to understand the concept of domicile and residency in some further detail.
Once an individual is regarded as being of UK domicile then that individual is taxable in the UK on their worldwide income and can no longer claim the remittance basis of taxation.
What can long term residents do?
As part of these changes there are two opportunities present for long term residents who will be impacted by these changes.
The first opportunity available to individuals who will become deemed domiciled on 6 April 2017 (not later than this date) is rebasing. Rebasing will allow those who have certain foreign assets to elect to have the 5 April 2017 market value as a base cost for future sale, allowing any appreciation of the asset since its acquisition to be “washed out” up to 5 April 2017.
The second opportunity enables long term residents who have previously claimed remittance basis prior to 6 April 2017 to cleanse mixed funds. Prior to these changes if a remittance was made from an offshore fund which contained mixed funds, i.e. income, capital gains and clean capital, specific ordering rules were in place which deemed that clean capital would be the last available source from which to remit.
Individuals who wish to cleanse mixed funds must do so before 5 April 2019. This exercise can be undertaken by analysis of the mixed fund account to separate the different elements of mixed funds. This can be a time consuming exercise however the opportunity to remit clean capital into the UK and enjoy as you see fit may well make this worthwhile.
Would you like help and advice on this or any other tax issue?
This cleansing opportunity is available to all individuals who are resident and non-domiciled and not merely those who have become deemed domiciled on 6 April 2017.
However, an exception to this rule is that any individual who was born in the UK with a UK domicile of origin cannot benefit from this mixed cleansing opportunity.
Please contact our office for more advice on these changes and how they may impact you. To make an appointment to speak with one of our specialists please telephone 01932 564098 or email us using our ‘Contact Us’ page.
This article was published in June 2018 – please be aware that the information above may have changed in subsequent months. This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.