First, any non-dom who has previously been taxed on the remittance basis has until 5 April 2019 to ‘cleanse’ their offshore accounts. Secondly, anyone who arrived here in 2004/05 will become deemed dom in a year’s time and should consider what action they need to take before then.
Cleansing is simply HMRC’s terminology for enabling a non-dom to unbundle the different categories of income and capital in a mixed funds bank account. This allows easy repatriation of clean capital without a tax charge, whilst leaving untaxed foreign income or gains offshore for non-UK spending needs. Experience has shown that analysing bank accounts can be time consuming. In addition, new bank accounts will be required to complete the process, so leaving this to the last minute is not an option.
Any non-doms who arrived here in 2004/05 and who have been resident ever since will become deemed dom for inheritance tax (IHT) purposes on 6 April 2019. From then on, worldwide assets will fall within the charge to IHT instead of just UK assets. If you are planning to leave the UK in the short term, then it makes little sense to undertake any significant planning. In all other cases, IHT exposures should be reviewed and appropriate steps taken before the year end. With the IHT death rate being 40 per cent, the tax bill can come as a nasty shock to family left behind.
IHT planning is another area which should not be entered into at the last minute. Careful thought, and often discussion with family members, will be required before a plan is put into place. Even if no other action is required, it is likely that new deemed doms will need to update their Wills to take account of their changed circumstances.
We all know how hard it is to keep to any New Year’s resolutions, but you can usually try again next year if you fail. However, for many non-doms this year, there won’t be a second chance, so it is worth making ‘sorting out your tax affairs’ a resolution you actually carry through.