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Summer Budget 2015: Abolition of permanent non-UK domicile status from 2017

12 July 2015

The current tax regime is generally advantageous for non-UK domiciled individuals, despite some erosion of the benefits over successive governments.

Historically, non-UK domiciled individuals were only liable to tax on worldwide income and gains to the extent that they either arose in the UK or were remitted to the UK.  This led to extensive offshore planning by many wealth non-UK domiciled individuals.

As part of his Pre-Budget Report 2007, Alistair Darling introduced the Remittance Basis Charge (RBC) in an attempt to limit the tax advantages of being non-UK domiciled.  This RBC has been adapted and now applies at different rates, depending on how long the non-UK domiciled individual has been UK resident.

Currently, UK resident but non-UK resident individuals can elect to pay the RBC and still be taxed on overseas income and gains using the remittance basis.  Alternatively they can default to being taxed on the arising basis in the same way as UK domiciled individuals.

What has changed?

The changes announced yesterday will significantly alter the regime to remove the permanent non-UK domiciled status for individuals who claim it.  A new deemed domicile rule will apply for income tax, capital gains tax and inheritance tax from 6 April 2017.

This will mean that non-UK domiciled individuals who have been UK resident for 15 out of the last 20 tax years will be taxed on the arising basis.  They will no longer be able to elect to pay the RBC and will be required to pay tax on worldwide income and gains as they arise.

What happens next?

We’re currently working through the detail and we understand that there will be a consultation period prior to these changes taking effect from April 2017.  We will be providing updates as further detail become available.

Author – Kirsty MacDonald – Senior Tax Manager

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