2017 Non-dom reforms: "your guess is as good as mine"

What has happened to the 2017 non-dom reforms since the Brexit vote? When are we likely to get more detail on these, or will they be delayed?

05 July 2016

Since the UK’s Brexit vote on Thursday 23 June, many of the UK’s non-doms have been asking what the effect will be for them. Longer-term that is impossible to judge and it may result in departures from the UK altogether. However, a more immediate question in the shorter-term is what impact the vote will have on the proposed tax reforms that were first announced in 2015 and due to take effect from 6 April 2017. Will they now go ahead and if so will they still be in the same form?

The title of this article – your guess is as good as mine – is not merely intended to reflect the general uncertainty; it is in fact what we have been told directly by a contact in the Treasury. But, with that uncertainty firmly in mind, we hope that the following “informed guesswork” may be of some use to clients who cannot wait for the current uncertainty to resolve itself and need to take a best-guess now.

We address the following questions frequently asked by clients over the last week.

1. Will we get more details soon?

Our best-guess on this is, yes. We understand that (along with 39 other consultation documents), further details on the proposed non-dom reforms have been drafted for some time and are simply waiting on the relevant minister to authorise their publication. We also understand that the Treasury is keen to publish this as soon as possible and that the non-dom consultations are towards the top of the pile.

Given a drive to continue with business-as-usual – we note that when Keanu Reeves visited the House of Commons, David Gauke was discussing GAAR counteraction notices – we suspect that the government will decide that there is no reason to delay publication much further.  We would also suggest that, with everything else in the news, now is as good a time to publish as any.

We were previously promised – albeit on the assumption of a Remain vote – publication in “early July”, so we would hope to get something perhaps within the next couple of weeks.

If we have not heard by 21 July, then Parliament will go into recess and we should not then expect to hear until after 5 September.

2. What detail could we expect?

We anticipate that the next publication will:

  • contain a summary of responses to the previous consultation give an outline of the government’s thinking on residential property structures and, crucially, whether the government is minded to give a “de-enveloping relief”
  • give more detail of the cryptic references earlier in the year to the re-basing of assets and transitional rules for “offshore funds”
  • with regard to offshore trusts, confirm that the earlier “dry-benefits” proposal has now been shelved and confirm the broad outline of the revised proposals for offshore trusts

We hope that the publication may include a skeleton of legislation, although we think that it is unlikely that this will be detailed.

We suspect that the revised trust proposals will not be as far advanced and will do little more than repeat what was said in informal meetings with professional bodies in April.  One of the key problems with offshore trusts was making the legislation comply with European law (such as free movement of capital) and the extent to which those rules will continue to apply is obviously very much at the heart of the current Brexit debate.

3. Will the legislation go ahead in 2017?

Our best-guess here is that, despite our views above, intervening events – a new Prime Minister in September; possibly a snap General Election – are likely to de-rail the timetable and by November / December, it will become apparent that there is insufficient time to finalise and enact all the proposals.

Therefore, we think – albeit only slightly on balance – that it is more likely than not that the proposals will eventually be delayed by a year.

But, that said, it would be bold to plan on that basis as there is still a sizeable chance that matters will proceed. We recommend, therefore, that non-doms should continue to plan as though the legislation is going ahead in 2017.

4. If the legislation is deferred, might it be shelved altogether?

There is a view among many of our clients that, in light of the Brexit vote, it would be sensible for the government to shelve the non-dom plans entirely.

We agree – but unfortunately common-sense seems unlikely to come into the decision!

It seems to us that there are two alternative political narratives that might emerge. The first is that Britain is still open for business; foreigners are still welcome; and therefore non-doms should continue to be encouraged. The second is that non-doms were part of the immigration / tax-avoidance problem that led to the Leave vote and that the proposals should, if anything, be harsher than originally planned.

We think, on balance, that the new government will want to keep both of these narratives in tension and will see the existing proposals as a sensible middle-course between them: with some good features for non-doms (rebasing; offshore-trust relaxations) but an overall message that longer-term non-doms will no-longer qualify for advantages.

As such, our view is that – even if the proposals are delayed – they will be enacted (probably by 2018 at the latest) in something like their present form.

5. Should I continue to delay or should I now take action?

With regard to residential property structures, our view has for some time been that we already know enough about the shape of the new proposals to advise on the best structure for the future. The only question has been whether to delay in the hope of a de-enveloping relief or to take action immediately (particularly as ATED continues to accrue on a daily basis). In our view, it would now make sense to wait another couple of weeks to see what any consultation document produces. Subject to that, however, we think that clients should proceed to restructure. It may be that this restructuring consists in getting all the documentation in place ready to sign at short-notice, but leaving the actual implementation until later. We think it would be unwise, however, to delay much past September as it may then become too late to take action ahead of April 2017 if that is needed. We do not think that, even if there is a delay until 2018, that conclusion changes.

With regard to other planning, it is probably still too early to take decisions, although we have a good idea of the likely structures and that which may be available. Hopefully any consultation document will get us to a point where planning can start in earnest.

6. Can I rely on any of the above?

As we said at the start, the above is only our best-guess and no-one can guarantee what the outcome is going to be.

We hope that this briefing is nonetheless useful. Another couple of weeks' delay is probably sensible, but after that decisions may need to be taken on the basis of guess-work.

Key contact

John Barnett

John Barnett Partner

  • Head of Private Client Services
  • Head of Partnerships
  • Tax

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