The biggest surprise, or shock of the budget was the proposal to limit the tax treatment of those who are resident in the UK but domiciled elsewhere. From 6 April 2017, a person who has been resident in the UK for more than 15 of the last 20 tax years will be taxable on worldwide income and gains. They will lose the ability to pay a £90,000 fee to use the remittance basis.
In addition, from the same date, if a person has a UK domicile of origin but a foreign domicile of choice, he will be treated for tax purposes as UK domiciled if he is resident here.
The Chancellor expects the changes to raise £1.5bn in extra tax over this parliament. That is probably two years worth of tax as the extra will first become due on 1 January 2019, i.e. £750m pa. This is a surprisingly low figure. It suggests that the Chancellor accepts that the most wealthy non-doms will emigrate – and probably take most of their wealth with them. This seems an extraordinary large risk for comparatively little extra money.
The wealthiest non-doms are of course fairly mobile. They have houses all over the world. The certainty provided by the Statutory Residence Test that Mr Osborne introduced in 2012 should make it easy for most non-doms to shed UK residence but still spend enough time in this country not to cramp their lifestyle too much.
The government intends to issue a consultation paper in the Autumn (which probably means around November). However this is not consultation on whether it is a sensible move. The Chancellor has already decided that it is. The consultation is simply “to get the detail right”.
One of the issues for consultation is split tax years. If a person was UK resident for part only of a tax year, should that part year be counted as one of the 15 or ignored?
If the individual has significant UK income, it should not be forgotten that a gift of cash to a UK charity (even if made overseas) attracts gift aid relief, so consideration might be given to timing sales of investment so as to generate a cash pot to be gifted.
Funds can of course also be gifted to an overseas charity (although that will not attract gift aid unless the charity is based in the European Economic Area). They can also be gifted to a non-resident family member (other than the donor’s spouse or infant children) if that person lives in a low-tax country.
CBW Tax reaction:
What should you do now?
Probably nothing. It is possible – but unlikely – that there will be some transitional rules, so it is sensible to wait until the consultation document is issued. That will still leave well over a year to make any changes.
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