Tax bill surprise coming down the line for “non-dom” art collectors

Billionaire art collector Roman Abramovich was probably hoping the proposed changes to taxation law affecting UK “non-doms” were an April Fool’s joke. Yet the rules, which are expected to hit prominent UK art collectors who reside abroad for tax purposes, are all too real. Originally due to come into effect on 6 April this year, the reforms have now been delayed because of the upcoming election, but remain in the pipeline.

Under the proposed laws, “non-doms” who have been resident in the UK for at least 15 of the past 20 years but have a permanent home abroad would be considered UK domiciled for tax purposes. The changes would mean that non-doms such as Abramovich could be liable to pay tax on any art they sell even if it is held outside the UK.

Currently, non-doms benefit from an alternative tax treatment known as the remittance basis according to which they only pay tax on income and gains brought into the UK. Under the proposed reforms, they would be liable to pay tax on income and gains arising anywhere in the world including on the sale of their artworks held abroad.

For non-doms born and originally domiciled in the UK who took up residence abroad and have since returned to live permanently in the UK, the changes are expected to have an even more considerable impact. This is because they would no longer be able to take advantage of old rules whereby art collections held abroad were not immediately subject to tax on any profits from sale or inheritance tax. Under the new rules, artworks sold by these individuals will be immediately taxable or else taxed upon their deaths.

While warning that the proposed reforms involve a great deal of complexity requiring careful consideration, Boodle Hatfield tax specialist, Fiona Graham, told The Art Newspaper that it should prompt non-doms to think of ways to mitigate their long term tax liability. This could include putting their artworks into a trust instead of owning them personally.

Once implemented, the changes to taxation of non-doms are expected to result in a gain of £420 million for the Treasury’s coffers.

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