CPDNov 8 2016

How to cope with tax changes to non-doms

  • To understand what the new non-dom rules are.
  • To grasp how to work around these in financial planning.
  • To learn the scope of the proposed regulations.
  • To understand what the new non-dom rules are.
  • To grasp how to work around these in financial planning.
  • To learn the scope of the proposed regulations.
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How to cope with tax changes to non-doms

Individuals from overseas, who come to the UK but who have not settled here permanently, have for many years been able to benefit from a unique tax system.

UK resident, non-UK domiciled (non-dom) individuals have been able to claim the remittance basis of taxation, meaning they only pay tax on income and gains made in the UK and any profits made overseas which they bring in (i.e., remit) to the UK. Any overseas profits remained outside of UK tax and often foreign tax as well. 

However, the government has proposed one of the biggest changes in the history of this regime, to take effect from April 2017. 

The move will mean that non-dom status will no longer be indefinitely claimed and it will be unavailable to anyone who has been UK resident in the UK for 15 years or more. 

Proposed changes have been discussed for years, but the latest proposals go further than any previous non-dom change.

There will also be changes to the ownership of residential property by non-doms and non-UK resident individuals, and changes to the taxation of overseas trusts, commonly used by non-doms as the tax system provides a favourable regime for them. 

But why is it such a contentious subject? Domicile is different to tax residence. Rather than being based on a series of tests around connections to the UK and the number of days spent in the UK during a tax year, domicile is more about an individual’s roots and country which they belong to.

Unfairness argument

Non-doms in the UK will normally need to have been born outside of the UK, or if within the UK, to parents who are only temporarily in the UK from overseas. Importantly they need to ensure they have no intention of settling permanently in the UK.

As a result, the arguments against the regime are around unfairness, as British individuals, who regard the UK as their home, cannot claim this favourable regime. 

It also makes the UK attractive to the wealthy from overseas that can organise their affairs to pay little or no tax on overseas profits. 

The effect of which is to push up prices generally, especially on property and particularly in London. Potentially, this means that locals are not able to afford to live in the areas now occupied by wealthy overseas property owners. 

The counter argument is that non-doms contribute greatly to the UK tax take. Total income tax receipts in 2015-16 were just over £168bn.

Consider this in the light of estimates that the non-dom contribution are between £6bn and £8bn, approximately 3.5 per cent to just under 5 per cent of the total income tax receipts to the Exchequer.

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