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Government non-dom proposals 'unduly harsh'

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5th Oct 2015
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The Chartered Institute of Taxation (CIOT) has criticised government proposals for the reform of taxation on non-doms as “unfair” and adding a layer of complexity to an already tricky topic.

‘Reforms to the taxation of non-domiciles’, released on Wednesday, proposes the introduction of place of birth as a new criterion in UK tax law. The paper states: “If you were born in the UK with a UK domicile of origin but later acquire a domicile of choice elsewhere (because your permanent home is in another country) you will be deemed UK domiciled from the first year in which you become UK tax resident.”

This tougher definition won’t apply to non-UK born individuals. “Non-UK born individuals will be considered UK domiciled if they “have been UK tax resident for 15 out of 20 years,” stated the document.

Reacting to the document’s proposals, the CIOT lamented the introduction of “a new element of complexity into an already complex area”.

Tax specialist Rebecca Cave agreed with this assessment: “It will particularly add a layer of complexity if the non-domicile person has a trust,” she said. “And very wealthy non-doms tend to have trusts – especially if they’ve had tax advice.”

The consultation document states, “The government thinks it is fair to ask any individual who becomes deemed-domiciled in the UK to pay tax on benefits they receive from any offshore trust and any underlying entities.”

This could cause a headache for wealthy UK born non-doms under the new proposals. If the person is drawing benefit from an offshore trust, and returns to The UK, the income is then immediately taxable.

Aparna Nathan, chair of the CIOT’s CGT and investment income sub-committee, commented: “As the proposal stands a UK born person who returns the UK to look after ageing relatives or to take up a temporary secondment will become deemed UK domiciled from the first tax year.

“As a result, they will have to pay UK income tax and capital gains tax on their worldwide income and gains, and UK inheritance tax on their worldwide assets. This seems an unduly onerous consequence of their place of birth combined with what might be a relatively brief period of UK residence later in life.”

David Gauke, financial secretary to the Treasury, stated in the document’s introduction, “The government also intends that any individual who is born in the UK and has a UK domicile of origin should not be able to claim non-dom status while they are living in the UK, even if they have left the UK and acquired a domicile of choice in another country.”

“The stricter regime for those born in the UK seems unduly harsh. Attaching such importance to a place of birth, which is clearly outside the individual’s control, and could be a matter of happenstance, is curious, ” argued the CIOT’s Aparan Nathan.

Helen McGhee, senior associate at New Quadrant Partners told AccountingWEB. “The new rules will certainly lead to some obscure outcomes, as Aparna mentions. For example, an individual who happens to be born in the UK to UK-domiciled parents, who leaves the UK and acquires a new domicile of choice and then returns to the UK again - the ‘boomerang individual’ - will be treated differently to his sibling who might by circumstance happen to have been born outside of the UK.”

According to McGhee, the idea of UK inheritance tax liability kicking in as soon as someone becomes an UK resident again is “very harsh”.

“It will require great care by the profession - an individual would not want to return to the UK just in time to produce a 10-year charge liability for trustees,” she said.

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Replies (6)

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7om
By Tom 7000
05th Oct 2015 12:19

Womb tax planning

Is your wife pregnant, schedule the birth perhaps in Geneva for your return to the UK a week later?

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By Ian McTernan CTA
05th Oct 2015 14:05

IHT

It's the IHT aspect that is most worrying.

If you live here then being taxed on your worldwide income and gains, less taxes already paid elsewhere, doesn't seem too harsh- as long as it's applied equally to everyone who resides here.  Having different rules for different classes of non-doms makes no sense.

They should simplify tax and get rid of the entire concept of domicile from UK taxation, then bring in rules to deal with the situations described above so that over time people who choose to live here permanently are taxed on more and more of their worldwide assets on death.

Choosing to live here should have the same benefits and obligations on everyone (subject to transitional periods).

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By pauljohnston
05th Oct 2015 17:44

What is this going to cost to

adminster and what is the likely yield - not HMRC's figure because as we know from other figures they can not be trusted.

What is the real cost to the country, bearing in find that this will affect very weathy people and if they leave the UK we will get nothing ie no taxes, whereas as present we get all the indirect taxes and some income tax charge (through dividends and UK income plus a non-doms tax charge.

 

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By AndrewV12
06th Oct 2015 15:03

Complex, tricky topic someones going to make money out of it

'and adding a layer of complexity to an already tricky topic.'

 

Complex, tricky, layered, my gosh all the ingredients that add up to aggressive tax avoidance schemes, at last HMRC has woken up to it, or some of it.  

Thanks (1)
By taxbakbristol
12th Oct 2015 04:00

HMR&Customs

Stop all the added  complexity.Just answer the phones and letters! THATS ALL YOU NEED TO DO!

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By twickers
12th Oct 2015 11:49

new rules for non doms

 

If people were truly professional /  dealing with the law/tax is their life/
 just like a surgeon [ we do not hear them moan about transplants should be avoided just because of the complications]  

It is about time HMRC showed up at the table of " i live here but do not wish to pay the bill"

A rough estimate on what a UK passport is worth to those with money ? £1m +

 

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