Following the Summer Budget announcement, the Government yesterday issued its promised consultation on the taxation of non-domiciliaries, popularly known as “non-doms”.
The consultation is due to run until 11 November with the aim of the inclusion of implementing legislation in the draft Finance Bill 2016. The Government’s stated aim is to “return the [non-domiciliary tax] system to its intention of supporting those from overseas who come to the UK but who do not intend to stay here permanently.” The objective behind the proposed changes is to ensure that long-term UK residents, who are non-doms, pay tax on their foreign income and gains in the same way as UK domiciled residents. By comparison, currently, non-doms living in the UK do not pay UK tax on their foreign source income and gains, if they make the appropriate election in their Tax Return, unless and until these are remitted to the UK After seven years of residence here the non-domiciled UK resident individual has to pay an annual charge in order to take advantage of this tax treatment, which is known as the “remittance basis”.
The Government’s proposal is that from April 2017 individuals who live in the UK for at least 15 of the preceding 20 tax years are to be regarded as deemed domiciled for income tax, capital gains tax and inheritance tax purposes. Thus, after an individual becomes deemed domiciled the remittance basis will no longer apply. This is similar to a rule that currently applies for inheritance tax purposes only, whereby an individual becomes deemed domiciled for inheritance tax purposes once he or she has been resident here for 17 out of the last 20 tax years. This will be reduced to 15 out of the last 20 tax years under the proposed new legislation.
The Government states that the new legislation is intended to recognise international mobility and it is proposed that this is achieved by providing that if someone has lived in the UK for more than 15 years, and then leaves the UK for six or more consecutive tax years, they should on their return to the UK enjoy another 15 years of residence before becoming deemed domiciled again.
In addition, the Government wishes to ensure that a person born in the UK with a UK domicile of origin cannot claim non-dom status if they have acquired a non-UK domicile and have then returned to live in the UK. It is intended that such an individual will become UK domiciled again as soon as they return to live here. This will mean that the remittance basis will not be available and will also mean that if that individual has set up an excluded property trust whilst non-domiciled that trust will again fall into the UK IHT net. No changes are, however, proposed to the excluded property rules generally which provide that if a person is non-UK domiciled then their foreign property is excluded property and not subject to inheritance tax.
We will comment in further detail on the proposals in due course.