Insights

We can expect to see quite radical changes to the UK domicile rules confirmed in the Chancellor’s forthcoming Budget speech on November 25^th.

The concept of domicile is peculiar to the UK tax system and is a completely different concept to that of either nationality or residence; an individual’s domicile is the place where they ‘belong’, or have their permanent home. Individuals who are born outside the UK to non-UK domiciled parents will usually have a non-UK domicile of origin unless they acquire a UK domicile of choice by making the UK their permanent home.

The chancellor announced in the budget in July that there will be a number of changes to the taxation of non-UK domiciled individuals (‘non-dom rules’) which are intended to take effect from 6 April 2017.

For tax purposes, the impact of the changes will be felt in numerous ways, as follows:

1. All UK residential property held by non-doms will be brought into charge for inheritance tax purposes, even where it is held through an offshore company;

2. Non-dom status will be removed for individuals who have been resident in the UK for 15 out of the last 20 years, when they will acquire a deemed UK domicile. The effect of this for inheritance tax purposes will be that their worldwide assets will then fall within the charge to inheritance tax, rather than only their UK assets. In order to lose that deemed UK domicile it will be necessary to leave the UK and spend more than five years outside the UK;

3. Non-doms who are resident in the UK and claim the remittance basis of taxation for income tax and capital gains tax purposes will no longer be able to do so once they have been UK resident for 15 years; instead they will be subject to UK tax on their worldwide income as it arises;

4. People who are born in the UK to UK resident parents will not be able to claim non-dom status if they leave the UK but then return to live in the UK. Verification of this development was provided in a Treasury document quoted in Accountancy Age magazine this month: "The government ... intends that any individual who is born in the UK and has a UK domicile of origin should not be able to claim non­-dom status while they are living in the UK, even if they have left the UK and acquired a domicile of choice in another country."

The government has said that the key intention of these reforms is to continue to offer a favourable regime to those coming to the UK for shorter periods – up to 15 years out of 20 – but to end any benefits after that.

Critics of the new proposals have argued that the new non dom rules will be overly complex and potentially unfair.

The Chartered Institute of Taxation has for example highlighted a very plausible scenario in which a UK born person may move overseas but return to the UK temporarily to care for an elderly relative. This could be a common scenario which could now have significant tax implications; under the new rules they will become UK domiciled and liable to pay UK income tax and capital gains tax on their worldwide income and gains, plus UK inheritance tax on their worldwide assets.

If you are currently non domiciled in the UK for tax purposes, or think you may be affected in other ways by these changes, please contact Lesley Stalker for advice by emailing las@rjp.co.uk.