Residence and domicile consultation

Monday 18 February 2008

Much has been made of the apparent "u-turn" from the Government on its plans to change the tax rules for non-UK domiciled individuals. But what has the Government actually said and how much clarity does this give the non-domiciled residents in the UK with only a few weeks left before the changes are brought in?

What is the background to the latest announcement?

The proposed changes to the tax rules will affect non-domiciled individuals who have been resident in the UK for seven out of the past nine tax years. These changes are due to come into force on 6 April 2008.

Currently, where an individual is resident but not domiciled in the UK they are charged to UK tax on their overseas income and gains when they are remitted to the UK, rather than as they arise. The proposals in the Pre-Budget Report in October last year were to charge a £30,000 annual fee for continuing to be taxed on this basis where the person has been UK resident for seven years and to remove the entitlement to certain personal allowances where the remittance basis is claimed (it has since been announced that this will be subject to a de minimis of £1,000 of unremitted overseas income and gains, below which individuals can continue to use the remittance basis with none of the above consequences).

However, when the draft legislation was published details emerged of further, wider-reaching implications for non-domiciled individuals. This has lead to a great deal of concern for non-domiciled residents in the UK, many of whom are now say they will leave.

What has the Government said?

Acting Chairman of HM Revenue & Customs (HMRC), Dave Hartnett has issued a letter in response to four issues that have been raised during the consultation period on the new tax rules for residence and domicile.

The consultation closes on 28 February 2008, and in the meantime HM Revenue & Customs (HMRC) is keen to clarify what its intentions are in relation to the issues that have been raised.

The letter says that it has always been the Government's intention to ensure that:

• those using the remittance basis will not be required to make any additional disclosures about their income and gains arising abroad. So long as they declare their remittances to the UK and pay UK tax on them, they will not be required to disclose information on the source of the remittances;
• there will be no retrospection in the treatment of trusts and the tax changes will not apply to gains accrued or realised prior to the changes coming into effect;
• money brought into the UK to pay the £30,000 charge will not itself be taxable; and
• it will continue to be possible to bring art works into the UK for public display without incurring a charge to tax.

What clarity does this provide?

No further details have been provided at this stage and therefore we may not know how the above points will be reflected in the draft legislation until the Finance Bill is published. Whilst this is believed to be before Easter, it will only give some individuals a few weeks in which to make important decisions about their affairs, especially with regards to assets held in offshore trusts where the proposed changes remain unclear.

Mike Warburton, Senior Tax Partner at Grant Thornton says: "The latest announcements from HMRC will provide some comfort to the non-domiciled individuals who find themselves affected by the changes. However, there remains uncertainty about how some of the rules will apply. In particular, as the rules for offshore trusts may not be known until the Finance Bill is published, this could leave some individuals struggling to get arrangements in place before the changes come into force."

If you think you may be affected by the changes and would like any further information, please click here to contact us.