Posted by Nick Day on 10 Jul 2015

UK Budget: UK tax treatment of “non-doms”

In his Budget on 8 July, the Chancellor announced major changes to the way non-domiciled individuals (“non-doms”) will be taxed in the UK from April 2017. These changes are not nearly as far reaching as those proposed by the Labour Party in the run up to the General Election.

Budget Changes 2015

Someone that is considered non-domiciled under general legal principles will be treated as if they are UK domiciled once they have been UK resident for 15 out of 20 years. This deemed UK domicile status will apply for the purposes of all the different taxes in the UK, such as income tax, capital gains tax and inheritance tax. Once the individual is deemed UK domiciled under this rule, they will no longer be able to claim the benefits of the “remittance basis” regime whereby non-UK income/gain is not taxed in the UK if not remitted to the UK.

They will be forced to pay tax on their world-wide income and gains in the same way as UK domiciled individuals. However, the general legal principles for determining domicile status will still apply, for example to the children of non-doms. A deemed UK domiciled individual under the 15 year rule will lose this status if they leave the UK only if they remain outside the UK for more than 5 tax years. This 5 year rule will be extended to UK domiciled individuals who have been resident in the UK for more than 15 years, replacing a similar 3 year rule that currently exists.

Individuals who have a UK domicile when they are born but who acquire a foreign domicile during their lifetime (for example, after emigrating from the UK) will become UK domiciled again should they return to the UK. Also, they will not receive favourable tax treatment on returning to the UK in respect of any offshore trust etc. arrangement set up whilst they were previously considered non-domiciled. It will be possible for these individuals to lose their UK domicile status again on leaving the UK subject to meeting various criteria.

From 6 April 2017 onwards, the government’s intention is that all UK residential property will become liable to UK inheritance tax whether it is owned by a non-dom directly or indirectly via an offshore company or an offshore trust. There will be a consultation period prior to the law being introduced. The intention is that “excluded property trusts” will continue to be effective for other UK and non-UK assets held offshore.

In summary, these new rules will bite mainly on the affairs of long term non-doms residing in the UK and also for UK doms returning to the UK, but the positive news is that non-doms that base themselves in the UK for relatively short periods of time can continue to enjoy the significant advantages of the remittance basis regime, such as “Overseas Workday Relief”, whereby earnings relating to non-UK employment duties can avoid UK income tax if not remitted to the UK. Read our previous article which comments on this and some of the other UK tax advantages that are available to non-doms.

This is a highly complex area and there is no substitute for taking proper and specific advice on your own personal circumstances.

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com