Tax will always be a political football, and in recent times, those fortunate enough to be considered non-doms will have felt like they have been kicked around more often than most – and sadly (for them) by the opposition team.
First we had the significant changes in April 2008 that had the effect of substantially widening the definition of what constitutes a remittance, whilst at the same time introducing a fee of £30,000 for using the remittance basis to protect un-remitted non-UK income and gains from UK tax. At the time this was a very popular move. The fee only kicked in after the non-dom had been tax resident in the UK for 7 of the last 9 tax years but that still caught a very large number of people. The major fallout though was mostly compliance-based as it simply required their UK accountant to do more work to declare what was almost always modest income or gains arising overseas. In more recent years, the Government has increased the remittance basis fee depending on how long a non-dom has been tax resident in the UK so that the fee now stands at £30,000 if they have been tax resident in the UK for more than 7 of the last 9 tax years, £60,000 if they have been resident for more than 12 of the last 14 years and £90,000 for those tax resident for more than 17 out of the last 20 years.
Earlier this month, Ed Miliband announced that, should Labour win the next election, they would abolish the non-dom status – which was amusing given that his would-be chancellor, Ed Balls, had, a month or so prior to this statement, said that it would be too costly for the UK to do so. However, whatever the misunderstanding between the left hand and the other left hand, it has made it into the Labour manifesto for the election on 7th May. Should they be successful, the fallout of this measure could affect a vast number of people who, through one structure or another, protect their overseas wealth from UK tax. What must be borne in mind here is that some (not all) of these individuals do employ their skills and their wealth (yes some of them do remit funds and pay tax on them) to benefit the UK economy by investing in enterprise and people here. It is quite clear that if they were not also living here that they may well not do this and prefer instead to invest their time, energy and expertise in whichever county they end up in. It is also worth noting that IHT is based on a person’s domicile and so it would be interesting to see how they would legislate to continue to catch ex-pats within the IHT net if they abolish the concept of domicile altogether.
We at CBW believe that, instead of getting rid of the non-dom status altogether, should Labour win, they will more likely keep part of the current structure, but make it so that once a person had been tax resident in the UK for more than 17 out of the last 20 tax years, they will be deemed domiciled in the UK (in the same way as a person is for IHT). A further change may be to deem someone domiciled in the UK if they are born here and get rid of the ‘domiciled where your father is from’ clause. However, this could be wishful thinking.
Thomas Adcock is a Tax Partner at chartered accountants Carter Backer Winter LLP. The dedicated tax team at CBW are well known for their expertise within the tax world and are regular commentators and presenters on all areas of tax. CBW hosts tax seminars for professionals, the most current being: ‘The Finance Act 2015: How will the significant changes affect you or your clients?’ on Tuesday 12 May and a Post Election Tax Seminar on Thursday 28 May. Please register to attend these seminars on CBW’s website or please email email@example.com for more information and to sign up to receive their regular tax updates.