Proposed changes to the UK Non-Dom Rules: Consultation
In the July Budget Statement the UK Government outlined its proposed changes to the current rules affecting non-domiciled individuals resident in the UK, who are taxed on income remitted to the UK. Details of the proposed changes were reported earlier this year in our bulletin of 15 July.
The Consultation Paper has now been published and sets in motion the consultation period, which is open until mid-November.
The opening paragraphs of the Consultation Paper confirms the Government’s view that the UK’s resident non-dom’s make a significant contribution to the success of the UK and that it remains committed to maintaining an internationally competitive tax system. The paper continues, however, stating the Government’s view that ‘those who choose to live in the UK for a very long time pay a fair share of tax’, which reiterates the Government’s earlier comments that individuals benefiting from UK residence should contribute ‘a fair share’.
The proposed changes that are subject to consultation can be summarised as follows.
Potential Changes for the Long Term Resident
Individuals who have been resident in the UK for 15 of the last 20 years would become deemed domicled in the UK and as such, subject to all UK taxes. They will no longer be able to protect their worldwide foreign income and gains from UK taxation and on death may be subject to inheritance tax in the UK on their worldwide estate.
Residency will be calculated following the criteria introduced in 2013 under the Statutory Residency Test and for periods before that date, under the common law residency tests. The application of domestic UK rules on residence, may catch individuals who are considered non-resident on the application of double tax treaty.
It is open to individuals to leave the UK after 15 years residence in the last 20, but they must remain UK non-resident for at least 6 years before returning to the UK as a non-dom taxable under the remittance basis for a further 15 years period of residence. It should also be borne in mind that years of arrival and departure will count toward 15 years residence, in accordance with existing split year rules.
It is intended that these proposals will come into effect from April 2017 and if adopted the current remittance basis charge of £90,000 will become redundant.
An individual who becomes deemed domiciled, under the proposals outlined above, will be treated as a UK domiciled individual, save for offshore trusts that were established before that individual became UK deemed domiciled. Income and gains arising within the trust will not be subject to UK tax, but it is proposed to tax the value of benefits a deemed dom or their immediate family receive from the offshore trust and any underlying entities.
The proposed UK tax will be applied regardless of whether the benefits are remitted to the UK or not. It is not yet known whether it is proposed the benefit will be taxed as income or subject to another tax.
UK Inheritance Tax
On becoming a deemed-dom after 15 years residence, an individual will be subject to UK IHT; save that the current rules, under which assets that were held in a trust before the individual was deemed-dom, will continue to enjoy the ‘excluded property’ exemption and outside the scope of UK IHT.
Returning UK doms
Individuals who had UK domicile of origin which they lost on acquiring a foreign domicile of choice, will be treated as having deemed UK domicile on becoming tax resident in the UK and, under these proposals, will not be treated as non-dom while resident in the UK from April 2017.
There will also be consequences for returning doms who established offshore trusts while having non-dom status.
For more information on this subject please contact Peter Brigham firstname.lastname@example.org
Full details of the proposed changes to the taxation of UK resident non-domiciled individuals can be found at https://www.gov.uk/government/consultations/reforms-to-the-taxation-of-non-domiciles/reforms-to-the-taxation-of-non-domiciles where the Consultation Paper ‘Reforms to the taxation of non-domiciles’ can be viewed in full.