Proposed tax changes: What impact for UK resident non-domiciles?

April 2015

Ed Miliband, the leader of the UK's Labour Party, in a speech on 8 April 2015 at the University of Warwick pledged to abolish the non-domicile rules.

There has not been much detail provided so far and in his speech he only discussed the non-taxation of foreign income, but one assumes that he is against the use of the remittance basis for Income Tax and Capital Gains Tax purposes and also against the use of non-domicile status to avoid Inheritance Tax. In the speech he states that the regime costs "hundreds of millions of pounds" and other statements from supporters mentioned the changes generating £1 billion or more a year. This seems unlikely and Ed Balls the Labour Shadow Chancellor, as recently as January 2015, stated that he thought abolishing the regime would lead to a net loss to tax receipts. When questioned on the possible net loss Ed Miliband stated that it didn’t matter as long as it was fairer.

It is difficult to say what exactly is proposed, but it would appear that the proposal is:

• Changes as from April 2016
• A period of transition for existing non-domiciles for say 2 years
• A new regime for temporary residents say for 2-5 years.

Labour has previously had this abolition as a manifesto pledge and did look at it whilst in power, but during their 13 years of Government until 2010 they did not abolish the regime, one presumes because of the risk to tax receipts and the wider UK economy.

Labour have published a note on six things you need to know about the non-domicile rules. Read it here.

Some of this is simply wrong or quite misguided. In particular in point 4 – it states that the system isn’t copied elsewhere in the world, which is simply incorrect, e.g. Ireland has a pretty identical system. There are also many jurisdictions that tax income on a remittance or territorial basis. It then quotes that ‘for example US residents … pay US tax on their worldwide income”. It doesn’t mention that the top rate of federal tax is 39.6% and applies to income over USD 413,200 compared to the Labour proposal for tax at 50% on income over £150,000.

In terms of practical steps for existing UK resident non-domiciles it is probably too early to take immediate action and it will be best to wait until after the election to see how matters develop. It is worthwhile though to review the overall robustness of any existing structures and in any case it is worth checking that there have been no accidental remittances, particularly in light of the automatic exchange of information next year under the UK IGAs.

For individuals considering moving to the UK it appears that there will still be a 2-5 year period where the existing rules will apply so there is still an element of stability.

SMP Group (Isle of Man) is a member of Russell Bedford International, a global network of independent firms of accountants, auditors, tax advisers and business consultants.