Progeny Private Law examine key changes for non-doms following the 2015 Summer Budget.
On July 8 2015, George Osborne unveiled the first entirely Conservative Budget since 1996. With the Conservative Party winning an outright majority in May’s general election, Osborne contended that, with this mandate, the new government would be able to pursue significant changes to the current tax and spending landscape.
Within the budget, which provides for the widely expected cuts to welfare, housing benefits and government spending, the Chancellor outlined the eagerly anticipated changes to non-dom status in the UK – perhaps the biggest since the introduction of the concept in 1914.
Whilst the Tory government will not go as far as Labour’s pre-election proposals to completely abolish non-dom status, the changes will directly impact the tax affairs of the estimated over 100,000 non-doms in the UK. The government’s belief is that the alterations to tax status for wealthy non-doms will help to raise £1.5bn over the next five years, with a £500m target for the first two years.
The key changes for non-doms that are expected to play out over the course of the current Parliament are as follows:
Permanent non-dom status is to be abolished from April 6th 2017.
The Summer Budget calls for the abolition of permanent non-dom status, effective from April 6th 2017. Non-doms living in the UK for more than 15 out of 20 years will lose their non-dom status. After this point they will be “deemed UK domiciled for tax purposes”. This means these individuals, now considered long-term UK residents, will no longer be able to claim the annual Remittance Basis Charge (‘RBC’).
The RBC is a particularly valued aspect of non-dom status because it allows non-doms to, subject to an annual charge, claim the remittance basis of taxation, which exempts foreign income and gains from tax as long as they are not remitted to the UK.
Individuals who become “deemed domicile” will be subject to UK Inheritance Tax (IHT) on not just assets held in the UK, but assets held anywhere in the world.
Those who currently have non-dom status are granted the right to keep the value of offshore assets outside of the UK tax regime, but will not be guaranteed this right on a permanent basis as a result of the new ‘15 year rule’.
In addition, residential property which is held in offshore structures will also no longer be exempt from IHT.
There will be no increases to the RBC.
Although many predicted that increases to the annual RBC would be announced as part of the Budget, the Chancellor has, at least for the time being, opted not to alter current arrangements. For non-doms who have been UK resident for at least 7 out of the previous 9 tax years, the RBC remains £30,000 per annum, whilst for those who have been resident for 12 out of 14 tax years will continue to be charged £60,000 per annum.
However, from April 2017, the third option for RBC, which currently provides for non-doms who have been resident for 17 out of 20 tax years to be charged £90,000 per annum, will cease to be a factor. This is because the proposed changes will see individuals automatically lose their non-dom status after 15 years of UK tax residency.
Non-dom status can no longer be inherited.
Anyone born in Britain to UK-domiciled parents will not be allowed to have non-dom status if they continue to live in the UK.
The domicile status of the parent will have no effect on the domicile status of the children. Instead, the domicile position for children will be judged independently.
What actions can non-doms take in light of the changes?
The introduction of the ‘15 year rule’ will likely see those individuals whose non-dom status will run out by or after April 6th 2017 take flight from the UK in order to ‘refresh’ their non-dom tax status. An additional clause, known as the ‘5 year rule’, provides for non-doms who have been deemed domiciled after 15 years to leave the UK for more than 5 years, after which time they will lose their deemed tax domicile, and thus become eligible once again for non-dom tax status. These individuals are known as ‘returning’ non-doms or, colloquially, ‘boomerang’ non-doms.
The government has confirmed that a detailed consultation document will be published later this year which will take into account views on how best to deliver the reforms. A further consultation is expected to follow on the draft legislation which is intended to form part of the 2016 Finance Bill.
Although the proposed changes are significant, the current government recognises the important contribution of non-dom status to public life and tax revenue in the UK.
We recommend that all non-doms take professional advice to ensure that their tax affairs are in order in light of the proposed changes. Progeny Private Law are on hand to advise non-doms on any aspect of the Summer Budget which might affect them, as well as to assist in identifying key tax planning opportunities for the future.