On 8 April 2015 Ed Miliband announced that if Labour come into power they will abolish the non-domicile rules. Currently, non-domicillaries –usually foreigners who are in the UK for a fixed period of time until they return to their home country – are entitled to claim a preferential basis of taxation in the UK known as the ‘remittance basis’. As a result those electing to be taxed on the remittance basis – like everyone else – continue pay UK tax on their UK source income and gains as and when they arise. However, unlike ‘everyone else’, those paying tax on the remittance basis only pay UK tax on their foreign income and gains to the extent that they are remitted to the UK. The intention behind these rules is to attract foreign entrepreneurs to the UK and encourage inward investment. Similar rules are used in certain other countries, such as Ireland.
Over the years – while many have agreed that the non-domicile rules benefit the economy – there has been increasing concern that the rules were perhaps overly generous. As a result there have been a number of reforms to balance the need to encourage inbound investment with the need for non-domicillaries to pay a ‘fair’ amount of tax. Most notably:
- Legislation was enacted in 2008 to clarify what is and is not a taxable remittance. This included strict rules to ensure that non-domicillaries pay UK tax on both direct and indirect remittances to the UK.
- A remittance basis charge was introduced for non-domicillaries who are long term residents in the UK. This starts at £30,000 for those resident in the UK for seven of the previous nine tax years and – following changes introduced by the current government in December – goes up to £90,000, depending on how long the non-domiciliary has been resident in the UK.
Under Labour’s proposals no new people will be able to rely on the non-domicile rules to claim the remittance basis of taxation from April 2016. Existing non-domicillaries will have a short period of time to adjust their affairs. Temporary exemptions of about two or three years will be available for students and those working in the UK for a short period of time.
Labour’s proposals will only be relevant if they are elected. The Conservatives have said that they have taken ‘the right approach’ in raising the remittance basis charge to £90,000. The Liberal Democrats have said that they would also increase the remittance basis charge and reform eligibility criteria.
No matter which party is elected change is in the air and if you are a non-domiciliary or an adviser to non-domicillaries you will need to watch out for these changes.
For further information about the tax treatment of non-domicillaries please contact the TaxDesk on 0845 4900 509 and ask for Priya Dutta.