What Now for Non-Doms?
Last week’s speech by Labour leader Ed Miliband has certainly ruffled some feathers and produced a high level of media coverage.
There are already changes proposed relating to the taxation of non-domiciled individuals (“non-doms”), in addition to the recent increases in the Remittance Basis charge. So whatever the outcome of the forthcoming General Election, “non-doms” will have to review and possibly rearrange their affairs. However, simply leaving the UK may not be an effective option. Under the Statutory Residence Test it is not always straightforward to become non-UK resident and hence remove oneself from the UK tax system. This combined with the personal upheaval involved in a physical move may inhibit people from leaving the UK.
Generally, in many cases, “non-doms” of more modest wealth have already stopped using the Remittance Basis of Taxation.
If the Remittance Basis is to be removed, leaving tax planning aside, there will be complexities around identifying the income for UK purposes from some types of foreign investments. Double tax relief under the various and numerous UK Treaties will be much more evident. There will be increased costs to the individual and to HMRC, in operating world-wide taxation in certain circumstances. The various exchange of information agreements such as FATCA or the UK/Swiss agreement, will have greater impact and scrutiny will be required on the detail.
It is hard to see how HMRC could bring in wholesale changes without full consultation and consideration, so for now the message is, to take time and reflect as events unfold. This announcement was always more about the headlines, than the detail; the politics rather than the economics. In the meantime “non-doms” may consider some of the following:-
- Leaving the UK.
- ‘Alienating’ foreign income and gains previously accumulated before any rules are changed.
- Reviewing matters to identify potential future foreign income flows and gains in order to assess future tax liabilities, if taxed on a “world-wide” basis.
- Accelerating, if possible, future foreign income and gains so that they are crystallised earlier to benefit from the present regime of the remittance basis of taxation.
The taxation of “non-doms” is a highly complex area and no action should be taken without specific professional advice. Our comments above should in no way be taken as constituting advice on the issues raised.
We will of course be monitoring developments closely and will keep you informed.