UK and International Tax news

Reforms To The Taxation Of Non Domiciles

Saturday 31st October 2015

HM Treasury has recently issued a consultative document on the potential reforms to the taxation on non UK domiciles, as announced by the Chancellor in the Summer 2015 Budget.

Under current tax rules, individuals who are resident but not domiciled in the UK are able to claim tax relief on overseas workdays during the first three years they are in the UK, are liable to UK tax on all income and capital gains which arise in the UK, and can choose to pay UK tax on their foreign income and capital gains only if/when they are remitted to the UK

The remittance basis rules have been a long standing feature of the UK although since 2008, choosing to be taxed on the remittance basis has meant forfeiting both the personal allowances for income tax and the annual exempt amount for capital gains tax.

Since 2008, longer term residents have had to pay a charge if they wish to use the remittance basis of tax. Those resident for at least seven of the previous nine years have had to pay an annual charge of £30,000 if they choose to be taxed under the remittance basis regime.

The coalition government introduced a new charge in April 2012 of £50,000 for those individuals who had been resident in the UK for at least 12 of the past 14 years. From April 2015, this charge was increased to £60,000, and a new charge of £90,000 was introduced for those resident for at least 17 of the past 20 years.

Individuals under the age of 18 are exempt from the remittance basis charges, whilst non UK doms who have less than £2,000 of unremitted foreign income and gains in a tax year do not need to claim to pay tax on the remittance basis and there is no charge to them for using the remittance basis.

The Chancellor announced further changes in his Summer 2015 Budget, in particular, any individual who has been resident in the UK for at least 15 of the past 20 tax years will be treated as deemed UK domiciled for tax purposes from the 16th year. Once deemed UK domiciled, an individual will no longer be able to use the remittance basis of tax, and his foreign and UK assets will be subject to inheritance tax. The government intends these new rules to take effect from April 2017.

This will bring to an end the permanency of non-dom status and will mean that those that have chosen to make the UK their long term residence will pay tax on the same basis as UK domiciles. However, the rules do need to continue to reflect the fact that some non-doms are internationally mobile and the rules need to reflect that flexibility.

The proposed rules will mean that an individual who has lived in the UK for 15 consecutive tax years and then leaves the UK for 6 or more consecutive tax years could return here and could claim non-dom status again for another 15 years, assuming he still had a foreign domicile status under general law. The government believes that introducing the deeming rule in this way will allow those non-doms who are internationally mobile to continue to benefit from non-dom status in a way that is not appropriate for those who are firmly based in the UK.

The condoc sets out the proposed approach for legislating the deemed test, the interaction with the statutory residency test and existing de minims rule and also sets out the proposed treatment of offshore trusts, further consequential changes and the implications for inheritance tax.

This consultation runs from 30 September 2015 to 11 November 2015.

If you would like more information on the condoc, please contact Keith Rushen on 0207 486 2378.

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