The long line of reforms cracking down on the tax advantages of being non-UK domiciled continues under the control of the UK's Conservative government.
The Summer Budget 2015 announced three main changes to the taxation of non-doms which are scheduled to be introduced in April 2017.
Change one: Currently non-doms can be long term UK resident and still benefit from the favourable remittance basis to avoid UK tax on their offshore income and capital gains. The Budget announced that long term UK resident non-doms will no longer be able to enjoy these tax breaks. All non-domiciled individuals who have been UK resident for more than 15 of the previous 20 tax years will be treated as UK domiciled for all tax purposes. This means that from the start of their 16th year of being UK tax resident, they will be liable to UK inheritance tax on their worldwide estate, and to UK income tax and capital gains tax on their worldwide income and capital gains as they arise.
Change two: All UK residential properties held indirectly by non-doms via offshore companies will be within the scope of UK inheritance tax. This will see an end to tax efficient structuring where non-doms typically own their UK residential property via offshore structures to avoid UK inheritance tax.
Change three: An individual who is born in the UK, with a UK domicile, but acquires a domicile elsewhere during their lifetime, will no longer be able to claim to be non-dom if they return to the UK. As soon as the individual returns to the UK they will be treated as UK domiciled for UK tax purposes.
The changes are, undoubtedly, a blow to non-doms. However, they are unlikely to have a significant impact: in 2012/13 long term resident non-doms amounted to less than 0.2% of UK taxpayers, yet they contributed £8.27bn in tax and national insurance. This represents almost 4% of the total UK income tax take. This is a source of revenue the government cannot afford to lose. The rules have been carefully balanced to avoid non-doms and the revenue they bring to the UK leaving en masse. Notwithstanding this, all non-doms should review their affairs well in advance of the rules coming into effect in April 2017.
For further information, please contact Charlie Sosna.