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The end to long-term non-domiciled tax status By Helena Whitmore, senior wealth structuring adviser, SEB Private Banking UK The new Conservative UK government is now in place, and the first budget has been delivered. During the course of the election campaign, both the Labour party and the Conservatives promised to make further changes to the taxation of nondomiciled individuals ('non-doms'). This was confirmed in the budget, which contained a number of far-reaching proposals in this area. As a result, many international individuals will need to review their UK tax status and prepare for a different set of rules going forward. So who will be affected? The concept of domicile can be confusing, and is based on the individual’s family origin as well as their longterm intentions. It is not the same as the concept of residence. Someone who was born outside the UK to foreign parents but comes to live in the UK for a limited period will be treated as resident in the UK but not domiciled here, unless he or she decides to remain in the UK permanently. So far, it has been possible to retain nondomiciled status for many years, provided that there is an intention to leave the UK at some point (perhaps on retirement, or when the children finish their education). It is possible to change domicile by cutting off ties with the country of origin and settling permanently somewhere else, but in many cases, despite living in another country for a long time, the individual’s domicile will not change. This is evidenced by many Scandinavians in the UK, who still keep strong emotional ties to their home country after many years away. One of the potential benefits of having nondom status is the option to make a claim to be taxed on the 'remittance basis' (whereby certain 112 | Issue 80 | September 2015
non-UK income and gains are only taxable in the UK if brought to or used in the UK directly or indirectly, rather than taxable as they arise, which is the normal rule). The long-term availability of this system has been questioned by many commentators. The government recognises that non-doms contribute a significant amount to the UK economy, but has stated that it wants to make the system fairer, so that those who choose to live in the UK for a long time should be taxed like everyone else. The budget therefore proposes that a concept of 'deemed domicile' will be introduced for all tax purposes with effect from April 2017, which will apply to non-doms who have been resident in the UK for 15 or more out of the past 20 years. After being deemed domiciled in the UK, the remittance basis will no longer be available, and UK inheritance tax will also apply to their worldwide assets. There is already a deemed domicile rule which applies to inheritance tax only, but the new rule will replace that and apply after a shorter period in the UK. Under the current rules, after seven years of residence in the UK, there is an annual Remittance Basis Charge payable for using the remittance basis system. Depending on the level of income arising, in many cases the cost of making the claim already outweighs the potential benefits (the charge ranges from £30,000 to £90,000 per annum). From April 2017, there will be no such option for those who have exceeded the 15-year limit. At the same time, the government intends to introduce new rules to ensure that non-doms can no longer use overseas structures to pro-
tect UK residential property from UK inheritance tax. There will also be a new rule for UK individuals who claim to have taken a new domicile of choice while living abroad, so that they can no longer claim non-dom status for tax purposes if they later return to the UK. A consultation process will take place before the new legislation draft is produced. Those who are affected will need to take advice to ensure that they fully understand what their new status involves. The content of this article is intended to provide a general guide. Specialist advice should be sought about your specific circumstances.
Helena Whitmore, senior wealth structuring advisor, SEB Private Banking UK
For more information, email privatebanking@seb.co.uk or call 020 7246 4307