Change will happen
It is clear that whatever the outcome of the General Election, there will be further changes to the taxation of UK tax resident non-UK domiciled individuals. Here are extracts from the manifestos of the main parties:-
- “We will abolish the non-dom rules so that those who live permanently in the UK pay tax in the same way as the rest of us.” – Labour
- “Restrict access to non-domiciled status, increasing the charges paid to adopt this status and ending the ability to inherit it” – Liberal Democrats
- “We will increase the annual tax charges paid by those with non-domiciled status, ensuring that they make a fair contribution to reducing the deficit, and continue to tackle abuses of this status” – Conservatives
Labour has stated that it will replace the non-dom rules with a new regime which distinguishes between temporary residence (3-5 years has been mentioned) and permanent residence. It has been suggested that the new rules will take account of what other countries offer. In this event, possibly the new rules will not be as draconian as feared, as several other European countries offer incentives in order to attract wealthy entrepreneurs to settle there.
Whilst the Scottish Nationalist Party’s manifesto is silent on the issue of domicile, the SNP has confirmed that it would support Labour’s proposals.
The Conservatives have indicated that they will consider withdrawing non-dom tax privileges for those who were born here and have inherited their non-dom status; that they will increase the annual tax charges paid by those with non-domiciled status and ensure that they make a fair contribution to reducing the deficit; and that they will continue to tackle abuses of this status. This suggests that the Conservatives may introduce even higher annual remittance basis charges than those which they have already introduced for 2015/2016 (whereby a person who has been tax resident for 17 of the past 20 tax years must pay £90,000 pa, a person who has been tax resident for 12 of the past 14 tax years must pay £60,000 pa and a person who has been tax resident for 7 of the past 9 tax years must pay £30,000 pa). Furthermore, the Conservatives are also considering (the Consultation Document was published on 22 January 2015) whether to continue to allow a non-dom to elect for remittance basis taxation on a year by year basis, or whether the election should be made for a minimum period of, say, 3 tax years.
The Liberal Democrats have also proposed higher remittance basis charges, so that those who have been tax resident in the UK for 17 of the past 20 tax years will see a rise from £90,000 to £150,000; those who have been tax resident in the UK for 12 of the past 14 years will see a rise from £60,000 to £100,000; and those who have been tax resident in the UK for 7 of the past 9 years will see a rise from £30,000 to £50,000.
It is to be expected that the Labour Party has already given consideration to the transitional arrangements and grandfathering provisions which it would introduce to enable those affected to reorganise their financial affairs, and that details of the changes would be announced soon after the formation of a Labour-led government.
As to the type of transitional arrangements and the grandfathering provisions which might be introduced, it is worth noting that in 2006, when Gordon Brown’s Labour Government introduced changes to the Inheritance Tax treatment of trusts, some pre-existing trusts were allowed to retain their old tax status (interest in possession trusts), and other trusts were given more than two years in which to transition.
It is to be hoped that the economic realities, not the political rhetoric, would underpin any changes.
What should non-doms do?
Whilst it is difficult to formulate any plans until the tax changes are known, we are already advising clients in relation to:-
- making offshore gifts of untaxed income and gains to adult children, which they then bring to the UK tax-free (please see the separate article on this);
- leaving the UK and taking up tax residence elsewhere;
- restructuring of offshore trusts, including excluding the settlor;
- accelerating the settling of new offshore trusts in the hope that they will secure enduring exemption from Inheritance Tax ;
- dismantling offshore trust and company structures;
- opportunities for UK companies;
- and UK tax reliefs.
In any event, if you have not already considered how the changes could affect you, then we would recommend that you please speak either to your usual Saffron adviser, or to Nicholas Hughes.