Regulation  

Ending non-dom a non-starter

Ed Miliband started it all. Sort of. When George Osborne delivered what many might consider a surprising Budget for the first Conservative government in 19 years, he sought to decisively take the heat out of the politically contentious question of the taxation of non-domiciled UK taxpayers (RNDs).

Lest anyone need reminding, Ed Miliband had promised as part of the election campaign to abolish non-dom status for tax purposes. That did not get him over the line with voters, but the Tories would no doubt rather not be caught out by the non-dom issue again.

So just why is it so contentious, and what are the implications of the changes announced?

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Non-domicile status applies to some taxpayers who generally were not born in the UK and do not intend to remain here permanently and indefinitely, as well as, in some cases, their children. As the group chief executive of HSBC, Stuart Gulliver, has shown, someone born in the UK can also become non-domiciled if another country becomes their permanent home. This is not easily done and domicile is very different from simply living abroad for a few years: it requires one to completely adopt a new home country.

All non-doms pay full UK tax on their UK income and gains – an often misunderstood and overlooked point. The only difference is that they pay tax on overseas income and gains only if they are remitted, that is, brought in directly or indirectly to the UK. Hence the concept of the remittance basis. This applies automatically in the first seven years of residence and after that the remittance basis charge ensures it only applies where a taxpayer pays up to £90,000 a year to be taxed on the remittance basis.

The remittance basis has very clear historic origins, and was essentially introduced to ensure that those who made their home in the UK’s colonies were not subject to tax on the overseas income if they spent time in the UK. Undoubtedly that seems anachronistic now, but the mere fact that the original impetus for the development of the remittance basis is no longer relevant is very far from a good reason to scrap it. Many British institutions could be accused of anachronism on that basis.

What remains undeniable is that the remittance basis has attracted a huge amount of controversy in recent years and has been accused of creating an unfair advantage for resident non-domiciliaries (RNDs). This overlooks the point that the very few RNDs who pay to be taxed on the remittance basis bring huge advantages to the UK economy, and most recent estimates are that the 5,100 people paying the remittance basis charge and 46,700 people who choose to be taxed on the remittance basis paid £8.2bn in income tax and national insurance in 2012/13 alone.

All of this notwithstanding, the debate has raged on and one should not forget that while Labour’s pre-election proposals were more radical than previous ones, changes to the remittance basis have long been mooted. In 1974 there was a proposal to end the remittance basis completely for non-doms who had been what was then called ‘ordinarily resident’ for five out of the six previous years. This was dropped. The next suggested change was raised in 1988. Thereafter all went quiet until 2002 when Labour launched a consultation, and changes were enacted in 2008 when the remittance basis charge was introduced.