UK: The Proposed Abolition Of The Non-Dom Tax Regime – Don’t Panic!

Last Updated: 30 April 2015
Article by Dominic Lawrance

As discussed in our previous briefing, Labour calls time on the remittance basis, Ed Miliband has announced a policy of abolishing what he called the "non-dom tax regime", to be implemented in the event of a Labour victory in the coming election. Many individuals who are UK resident but non-UK domiciled ("RNDs") will be contemplating the implications for them of such a development, if Labour does indeed come to power, and wondering what steps they might take to mitigate its impact.

We would suggest that RNDs should try to resist the urge to panic, and should avoid kneejerk reactions. In our view, it would be highly premature to try to plan around the possible reform at this stage, when there is such uncertainty about which party or parties will make up the next government, and about the exact form of any changes to the tax regime, and indeed when those changes would take effect. It should be stressed that, as with previous changes to the RND tax regime, there is likely to be a consultation process regarding any proposed reform, which will (a) give professional advisers a good idea of how the legislation will be amended, before the changes are implemented, and (b) provide opportunities for advisers to comment and attempt to influence the new rules, to minimise unfairness to existing RNDs.

Nevertheless, there is definitely some merit in considering what kind of steps might be taken by existing RNDs (and some ideas are offered below). Non-UK residents who have been considering becoming RNDs but have not yet committed themselves would be well-advised to adopt a "wait and see" approach - postponing the commencement of UK residence, if possible, until there is greater clarity about the future of the tax regime.

It seems unlikely, in fact, that the remittance basis rules and the other tax rules relating to RNDs would be repealed in their entirety and struck from the statute book. That would present an amazing opportunity for former remittance basis users with unremitted foreign income and/or gains to remit them, after the repeal, without tax.

More likely (if Labour come to power and press ahead with this reform) is that the remittance basis rules remain applicable to historic unremitted foreign income and gains, but that from a specified date the availability of the remittance basis with respect to future foreign income and gains will be withdrawn, from all RNDs except those whose have been UK resident for less than a certain specified period. There is likely to be consultation, and "negotiation", on how long that period should be, so as to be "fair" to ordinary taxpayers but at the same time attract foreign migrant wealth and skills to the UK.

Making the assumption that this is what indeed happens, the question for RNDs who will lose the ability to use the remittance basis on that specified date is: what should I do, by way of a response to the change of regime?

For some RNDs who are using the remittance basis at present, this may not be too much of a conundrum. Undoubtedly there will be some for whom the remittance basis shields large sums from UK taxation, and who already spend a lot of time outside the UK. Some such individuals may be able to procure that their time in the UK is reduced sufficiently to achieve non-UK residence, without losing all their ties to the UK. Depending on the number of statutory ties to the UK, this may require limiting UK midnights to 120, 90, 45 or 15 per UK tax year. Because of the complexity of the rules, expert advice is advisable.

However, individuals in this position will of course need to consider whether the required change in travel patterns will make them resident anywhere else, and if so what their tax position would be in any new country of residence, factoring in not only the taxation of their income and gains but also wealth taxation, if applicable. And ceasing to be UK resident may not be an option for someone who in due course is seeking to apply for British nationality.

In cases at the opposite end of the spectrum there may, likewise, be little to debate. There are a significant number of individuals for whom the benefit, in pure tax terms, of the remittance basis is marginal. After remittance basis charges have been taken into account, and after tax has been paid on necessary remittances, the saving achieved by claiming the remittance basis may be modest; although there may be actual or perceived advantages in relation to keeping financial information confidential, reducing the scope for HMRC investigation into foreign wealth, and reducing compliance costs. Individuals in this camp are likely to move, without much demur, onto the arising (normal) basis of taxation, perhaps with only a slight increase in the annual tax cost. It is likely that they will need to continue to guard against remittances to the UK of foreign income and gains dating from previous years in which the remittance basis was claimed, which will necessitate on-going segregation of cash and assets with different tax statuses.

The more difficult cases will be those RNDs who currently use the remittance basis, where that basis of taxation avoids a substantial amount of UK tax on foreign income and/or gains, and where it would be impossible, or highly unattractive, to cease being UK resident. How such individuals should react to a withdrawal of the remittance basis will depend, to a large degree, on their personal circumstances – there are definitely no automatic or universally applicable solutions. But ideas that might be considered, with appropriate professional advice nearer the time, include:

  • Deferral of tax on investment gains by transferring assets to a company incorporated in a country with which the UK has a treaty which "blocks" the attribution of the company's gains to its UK resident shareholders, so that UK taxation of such gains is effectively postponed until a sale or liquidation of the company.
  • Deferral of tax on investment income by giving assets to an offshore trust, from which the RND and any spouse or civil partner have been excluded. This would potentially also be advantageous for inheritance tax (making the assumption that some aspects, at least, of the current inheritance tax regime for non-UK domiciliaries are retained). Investment gains might however continue to be taxable on the RND, notwithstanding his/her exclusion.
  • Deferral of tax on investment income/gains by investing in an appropriate offshore life insurance bond. Partial withdrawals of value from the bond might be possible without any tax being triggered. The bond might be held via an offshore trust, if that would be advantageous for inheritance tax.
  • Tax mitigation through the gift of assets to a non-UK resident family member who is resident in a lower (or zero) tax country. Obviously this involves a loss of control and indeed any ability to guarantee any future benefit from the assets given away. However, this simple approach may be attractive to RNDs with non-UK resident spouses, and RNDs from parts of the world where it is common for family wealth to be held by chosen family members as informal custodians.
  • The same idea but coupled with some sort of contractual mechanism (e.g. an option) to try to ensure that the assets that have been given away, or their value, can be retracted at a later date, perhaps after the RND has ceased to be UK resident.
  • The same idea but preserving influence/control over how the assets are invested. This might, for example, be achieved by means of a limited partnership or family investment company.

The above is not an exhaustive list of the options – it is intended as an illustration of the lines along which RNDs and their advisers should be thinking. It should be stressed also that, at this stage, these ideas are no more than possibilities. Their viability will depend on RNDs' personal circumstances and also on the details of how the tax regime is amended - assuming that there is, indeed, a significant change to the regime, of the kind which the Labour party has proposed.

RNDs should certainly be braced for possible change, and the need to take advice – neither of which will be particularly welcome. However, with appropriate planning, it may be that any reform of the tax regime will be manageable, and not quite as traumatic as currently feared.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Charles Russell Speechlys LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Charles Russell Speechlys LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions