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Government presses ahead with non-dom tax changes

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THE government is pressing ahead with changes to the way it taxes individuals with a foreign domicile.

Under proposals first announced at the 2015 Summer Budget, non-doms will have to pay UK tax on their worldwide income, while those born in the UK and who own a UK domicile of origin will no longer be able to claim non-dom status for tax purposes while they are living in the UK, even if they have subsequently left the UK and acquired a domicile of choice in another country.

In a consultation document, the government said that it plans to bring residential properties in the UK within the charge to inheritance tax where they are held within an overseas structure. This charge will apply both to individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled.

To implement the extended IHT charge, the government proposes to remove UK residential properties owned indirectly through offshore structures from the current definitions of excluded property currently provided by sections 6 and 48 of the Inheritance Act (IHTA) 1984. The effect will be that such UK residential properties will no longer be excluded from the charge to IHT. This will apply whether the overseas structure is owned by an individual or a trust.

Once the legislation comes into effect, shares in offshore close companies and similar entities will no longer be excluded property if, and to the extent that, the value of any interest in the entity is derived, directly or indirectly, from residential property in the UK. There will be no change to the treatment of companies other than close companies and similar entities.

Similarly, where a non-domiciled individual is a member of an overseas partnership which holds a residential property in the UK, such properties will no longer be treated as excluded property for the purposes of IHT.

No change will be made to the taxation of UK property which is held by corporate or other structures which are owned by UK domiciled individuals or by trusts made by UK domiciled individuals.

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