Statutory definition of domicile?
It was a great relief to many that Labour’s sweeping proposals to reform the tax regime for foreign domiciliaries or “non-doms” were quashed, at least for another five year parliamentary term. However, we should not forget that during the election campaign George Osborne announced that the Conservative Party was also considering its own reforms to the existing non-dom rules, albeit considerably less drastic ones.
Little detail is available yet, but it is probable that any changes to domicile legislation will aim to “weed out” claims to foreign domicile status that are perceived to be less meritorious. In particular, it is predicted that changes could affect individuals who were born in the UK and have lived here all of their lives but, under the current rules, have “inherited” non-dom status from their father at the time of their birth. Modifications could also be directed to British citizens who have emigrated, settled abroad and subsequently returned to live in the UK, yet still claim a domicile of choice abroad.
These proposals would require amendment to the rules which determine an individual’s domicile which is currently ascertained by reference to a significant body of case law. At present, there is no statutory definition of domicile, except for Inheritance Tax purposes, so presumably this would change if the Government moves ahead with these reforms.
In recent years, proposals to change the non-dom regime have been accompanied by a consultation period. This gives professional advisers guidance on how the legislation will be amended and also provides an opportunity for interested parties to comment. However, as the Chancellor has announced a surprise budget on 8th July and promised further crackdowns on “tax avoidance and aggressive tax planning by the rich”, non-doms might consider accelerating the implementation of tax planning if this was already scheduled. It may be sensible for non-doms to revisit their domicile status and seek professional advice on this.
Changes to the remittance basis?
Non-doms can elect to be taxed either on the arising basis, on their worldwide income and gains, or be taxed on an alternative basis, commonly known as the “remittance basis”. Non-doms claiming the remittance basis pay tax on their UK income and gains as they arise but only pay UK tax on their foreign income and gains to the extent that they are remitted to the UK. Long-term non-dom visitors may be required to pay the remittance basis charge (RBC).
The RBC has become more expensive since 6th April this year. Non-doms who have been UK resident in 7 out of the last 9 years will continue to pay a RBC of £30,000 per year. However, the fee will increase to £60,000 per year for those persons who have been UK resident in 12 out of the last 14 tax years and £90,000 per year for those persons who have been UK resident in 17 out of the last 20 tax years.
Changes to the RBC are on the horizon as HM Revenue & Customs consulted recently on changing the rules on claiming the remittance basis and paying the RBC, from an annual election to an election which lasts three years. If implemented, these rules would mean that the RBC is guaranteed to be paid three times. However, careful tax planning using offshore trusts and offshore financial products can mean that the RBC need not be paid.
In conclusion, government policy is likely to keep the remittance basis for non-doms as this is perceived to be a welcome source of revenue. But it can be expected that there may be further tinkering with the regime to collect as much tax as possible to be perceived to be “fair” to the public, without tipping the balance to make the non-doms leave.
Mark Davies, Managing Director and Founder of Mark Davies & Associates
Mark’s article was published in the May 2015 edition of Tax Journal.