UK non-dom changes unfair, unreasonable, disproportionate

Plans that would effectively end the UK’s non-domicile status for tax purposes have the potential to do more harm than good and could be contrary to EU law, according to the Institute of Chartered Accountants.

The changes, announced by chancellor George Osborne in the 2015 summer budget, mean that non-UK domiciled long-term residents will, in future, have to pay tax on the same basis as UK-domiciled residents.

Deemed to be domiciled

From 6 April 2017, anyone who has been resident in the UK for 15 of the past 20 years will be deemed to be UK-domiciled for UK income tax, capital gains tax, and inheritance tax from the start of their 16th year.

From April 2017, individuals born in the UK to UK-domiciled parents will no longer be able to claim “non-dom status” for tax purposes when they are resident in the UK, even if under general law they have acquired a domicile in another country.

Unfair, unreasonable, and disproportionate

Following a consultation on the proposed changes, the Tax Faculty of the Institute of Chartered Accountants in England & Wales (ICAEW) has expressed concern that the provisions as presently outlined are not fair, reasonable, or proportionate; and could be contrary to EU law.

In a statement, ICAEW advised: “The potential damage to the UK economy could outweigh any anticipated exchequer gain. In particular, foreign domiciliaries have been subject to too much change, and could leave the UK or decide not to come here.

“Foreign domiciliaries have been subject to too much change, and could leave the UK or decide not to come here.”

“We would welcome a clear government statement that there will be no further detrimental changes and commitment to simplify the existing remittance basis rules.”

Draft discussion

ICAEW, along with The Law Society, the Chartered Institute of Taxation, and UK professional body STEP, have produced a discussion draft on the possible treatment of offshore settlements for non-doms after April 2017.

Of particular concern is the benefit charge on offshore trusts.

This requires any individual who, following the changes, is deemed to be UK-domiciled to pay tax on benefits they receive from any offshore trust and underlying entities.

These benefits will be taxed without reference to the income and gains arising in the offshore structure – which the Treasury has admitted is a “very significant change” to existing practice.