Non-doms remain under threat despite Labour defeat

Changing legislation and rising charges will mean that non-doms cannot rest on their laurels following the election of a majority Conservative government in the UK general election last week, warns law firm Stephenson Harwood.

Speaking today at the company’s Inaugural Global Private Wealth Forum, James Quarmby, partner and head of the firm’s private wealth team, said that while non-domiciled UK residents may have avoided Labour’s ban on non-dom status, they are still likely to face alterations to the way they keep their offshore assets free from tax.

“The Tories have made it clear that they see the non-dom as a cash cow. As we all know, the main parties can spend the weeks running up to the election attempting to outdo each other. So when Ed Miliband said he was going to abolish non-dom status, the Tories came up with the lunacy of abolishing the inheritance of non-dom status.”

Under the current rules, the non-dom status is inherited from a person’s father, unless a person’s mother was unmarried at the time of birth. However, the Conservative’s have proposed the removal of this technicality by making non-dom status achievable only by being born outside the UK.

Works both ways

Quarmby warned that introducing such nuances could lead UK residents to take questionable measures to achieve the status.

“If you bring in rules like this, it works both ways, and the government could lose money,” he said. “For example, we could see a situation where a mother moves to France two weeks before the birth. Tax planning at the earliest stages.”

UK resident non-doms pay UK income tax and capital gains tax on their UK sources of income and gains, and on foreign income or gains, but only to the extent that they are remitted to the UK.

After the non-dom has been resident in the UK in seven out of the last nine tax years, there is a requirement to pay a remittance basis charge each year the remittance basis is claimed on overseas and income and gains.

In last year’s Budget, chancellor George Osborne announced that from 6 April 2015 the charge for non-doms who have been UK resident for more than 12 out of the previous 14 tax years will be increased from £50,000 to £60,000, while claimants who have been UK resident for 17 out of the previous 20 tax years will be subject to a new higher charge of £90,000.

Breach of human rights

However, the £30,000 charge for those who have been UK resident for more than seven out of the previous nine tax years remains unchanged.

Quarmby said the higher charges will put people off applying for the non-dom status: “People are going to start saying it is not worth it. It does not even give an exemption from tax, it just means it does not have to be paid instantly.”
He also criticised HM Revenue & Custom’s crackdown on tax avoidance over the last year, which has seen it demand payments from users of avoidance schemes through Accelerated Payment Notices and Follower Notices.

Quarmby said the notices, which do not offer recipients an opportunity to appeal their fine until after it has been paid, represent a “breach of human rights”.
“There is nothing to stop the Government introducing laws like this, and it goes against the right to a trial. It is basically extortion, reciepients of the notices face a 50% charge if they do not pay a fine within 90 days, but if they successfully appeal against the fine, the Revenue does not have to pay them compensation.”