Changes to the taxation of non-domiciled individuals

  • July 14, 2015
  • By Hunters Law

The Chancellor, George Osborne, announced significant changes to the taxation of non-domiciled individuals in his Budget on 8th July 2015.

Under existing legislation, UK resident and domiciled individuals are taxed on their worldwide income or gains.  The position is the same for UK resident but non-domiciled individuals (‘Non-Doms’) except that they are entitled to special treatment of their foreign income and gains.  If Non-Doms elect to be taxed on the remittance basis, they will not be subject to UK tax on their foreign income and gains unless they bring them to the UK.

A UK domiciled person is subject to inheritance tax (‘IHT’) on their worldwide estate, whereas a Non-Dom is only subject to IHT on assets situated in the UK, unless they become deemed domiciled by being UK resident for 17 out of the previous 20 tax years, in which case they are then subject to IHT on their worldwide estate.  Following criticism of these rules on the basis that long term UK resident Non-Doms benefit unfairly from their non-domiciled status, the government will consult on the following proposals with a view to draft legislation forming part of the 2016 Finance Bill and taking effect from 6th April 2017.

The government is proposing to treat Non-Doms, who have been resident in the UK for more than 15 out of the previous 20 tax years, as deemed domiciled for all tax purposes.  Therefore, from their 16th year of UK residence, Non-doms will be subject to UK tax on their worldwide income and gains, and to IHT on their worldwide estate.  They will no longer be able to elect to be taxed on the remittance basis.

Having become UK deemed domiciled, that status will only be lost after spending more than five years resident outside the UK.  After that time, the non-domiciled individual can spend up to another 15 tax years as UK resident without becoming deemed domiciled again.

A further proposal relates to individuals who have a UK domicile from birth, but who leave the UK and acquire a domicile of choice abroad.  The government is proposing to tax such individuals as UK domiciled when they become UK resident again in the future, irrespective of their domicile status under general law.  Trusts established by an individual while he was non-UK domiciled will also lose their favoured status while that individual is UK resident.

For more information, please contact the partner having responsibility for your affairs, or any partner in the Private Client Department here.

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