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UK Consults On Non-Dom Tax Reforms

Wednesday, October 7, 2015

The UK Government has released details of its plans to abolish the permanency of non-domicile status through the introduction of a "deemed domicile rule."

In his Summer Budget, Chancellor George Osborne announced plans to abolish the permanent non-dom tax status, meaning that anyone resident in the UK for more than 15 of the past 20 years will have to pay full UK tax on all worldwide income and gains. According to a consultation document published by the Government, the new rules will also ensure that "individuals who are born in the UK and are UK domiciled at birth will not be able to claim that they are not domiciled for tax purposes while they are living in the UK."

Under the plans, from the 16th year of UK residence, a foreign domiciliary will become "deemed-UK domiciled." They will no longer be able to use the remittance basis of tax, nor will they be able to rely on any other rules for people who are not domiciled in the UK. Their foreign and UK assets will be subject to inheritance tax.

The proposed rules will mean that an individual who has lived in the UK for 15 consecutive tax years and then leaves the UK for six or more consecutive tax years could return to the country and claim non-dom status for a further 15 years, assuming they still had a foreign domicile status under general law. The Government said that this will allow those non-doms who are internationally mobile to continue to benefit from non-dom status in a way that is not appropriate for those who are firmly based in the UK.

The Government may choose to preserve the GBP2,000 (USD3,032) de-minimis threshold for those non-domiciled individuals who become deemed-UK domiciled. The Government intends that earnings that relate to a period while an individual was not domiciled and not deemed-UK domiciled that are paid after the individual becomes deemed-UK domiciled will still be eligible to be taxed under the remittance basis where all of the applicable conditions are met.

It does not intend that non-domicilliaries who become deemed-UK domiciled should have to pay UK tax on income and gains in offshore structures that were set up before they became deemed domiciled. The Government will ensure that any individual who becomes deemed-UK domiciled will continue to be protected from UK tax on offshore trusts that they have settled while neither they nor their spouse or children receive any benefit from the trust.

In his foreword to the consultation, David Gauke, Financial Secretary to the Treasury, said: "The majority of non-domiciled individuals who come to the UK leave again within a few years from the date they first arrive and so will not be affected by these reforms. These announcements have been carefully targeted to address some unfairness in the current rules in a way that will not deter those individuals who might be considering a move to the UK. The reforms will return the system to its intention of supporting those from overseas who come to the UK but who don't intend to stay here permanently."

The consultation closes on November 11.