Chancellor of the Exchequer George Osborne has set out plans to scrap permanent non-domicile status as part of plans to make the tax system fair and internationally competative.
Announcing the shock move in his summer Budget announcement, the Chancellor said: “The UK’s rules for those who are not domiciled here are important in attracting people to live and to work here. The government remains committed to that aim.
“However, the government also wants the system to be fair. It believes that those who choose to live in the UK for a long time should pay taxes here like everybody else.”
From April 2017, anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes. The move does not eliminate the tax status.
It will also no longer be possible for people born in the country to UK domiciled parents to claim non-domicile status if they leave but then return and take up residency in the UK.
Mr Osborne said that ending the practise would provide a fairer system and will allow the country to maintain the ability it has to attract people to come to the UK to work and invest.
He also announced that from April 2017 the government would introduce rules targeting homeowners who would otherwise pay inheritance tax on that property but avoid paying it by holding it in an offshore structure.
“These changes will limit abuses of the rules by people with non-domicile status who use complicated structures to make their UK homes look like offshore assets,” he said.
Responding to the announcement, Alison Cartin, associate director, at London-based international law firm Berwin Leighton Paisner, said: “There are extensive changes to the non-domicile status, which will have a significant impact on long-term UK resident non-doms. It may nevertheless be a relief to the globally wealthy and their advisers to see some clear, balanced thinking on this, in light of the press around the time of the election.”
While Neal Todd, partner at BLP, said the combination of the changes to the non-dom rules coupled with those to the capital gains tax treatment of returns from investment funds was a concern for those working in the funds industry.
He said: “The government went out of its way in the last Parliament to encourage funds to come on shore. It is to be hoped that today’s measures will not detract from the attractiveness of the UK as a location for fund management.”
The Chancellor said that scrapping the status would bring in an additional £1.5bn in annual tax revenue.