Historic loans taken out by non-doms will not face extra tax
• Loans taken out in previous tax years will not face additional tax
• Revenue’s guidance on non-dom loan rules changed twice in the last eighteen months
• HMRC inconsistency on tax rules undermines UK’s appeal to international High Net Worths
HMRC has announced that it will not be seeking additional tax from non-doms who historically took out loans secured on foreign assets, says Collyer Bristow, the law firm.
Collyer Bristow says that this is a welcome change as HMRC’s controversial previous position would have seen significant unexpected additional tax levied on individuals who had followed explicit HMRC guidance.
This would have put a number of taxpayers in the position of having to unwind financial arrangements they were reliant on or face a large tax charge. In the case of mortgages, for example this could have resulted in substantial personal disruption and cost.
Collyer Bristow says that complexity, inconsistency and uncertainty are eroding the UK’s position as an attractive jurisdiction for High Net Worth individuals.
In the past eighteen months HMRC has twice changed its approach to the tax treatment of loans taken out by non-domiciled taxpayers which use foreign assets as collateral:
• Until August 2014 the assets on which a loan was secured were not taxed as taxpayers were deemed to already be paying tax on remittances used to repay the loan
• In August 2014 HMRC stated its previous approach had been a concession and decided that those taking out such out loans would have to pay tax on the assets on the same basis as if they were remitting the assets to the UK from overseas
• Additionally HMRC said that those who had taken out loans previously would have to unwind the loans or pay tax on them
• Last week HMRC reversed its position that the tax charges could be backdated to previous tax years but maintained that the use of offshore assets to secure such loans would be taxable going forwards
James Badcock, Partner and Head of Private Client Services at Collyer Bristow says:
“The most recent reversal of HMRC's position in respect of existing arrangements is welcome. Taxpayers should not face additional charges based on periods when they have been acting in good faith and in accordance with HMRC guidance.
“For a time HMRC was seeking to levy additional tax from people who had followed its guidance accurately. Taxpayers have a legitimate expectation of consistency from HMRC and these types of changes make the UK less attractive to those considering moving here.
“While HMRC's final interpretation of the rules in not unreasonable, the problem is inconsistency which highlights the difficulty taxpayers have in understanding their position and chips away the UK’s position as a welcoming jurisdiction for High Net Worth individuals.
“Taxpayers who have used this kind of arrangement should seek advice to ensure that their tax position is clear.”