The UK is consulting on plans to bring an end to the permanent non-domiciled status.

The UK government is consulting the wealth management and legal professions – among others – on its plans to end the status of permanent non-domiciled residency in the country in response to political pressure to end the practice. 

The consultation process, which runs to 11 November, sets out plans to “restrict certain individuals from claiming non-dom status for tax purposes”.

According to a statement issued yesterday on the HM Treasury website, the “deemed domicile rule” will be introduced so that long term residents of the UK can no longer claim to be non-domiciled for tax purposes. “The new rules will also ensure that individuals who are born in the UK and who are UK domiciled at birth will not be able to claim that they are not domiciled for tax purposes while they are living in the UK,” the statement said.

The consultation follows the announcement by finance minister George Osborne after this year’s May general election that he intended to end permanent non-dom status, a move seen as a response to anger at the alleged injustice of such a status. The whole notion of non-dom status (which dates back to the late 18th Century in the UK) became a political flashpoint in the election.

Pinsent Masons, the law firm, has argued that non-doms bring in significant sums of revenue to the UK, confounding claims that they are getting an easy ride. Based on a Freedom of Information Act request from HM Revenue & Customs in the UK, it argued that changes to non-dom status could hit revenues. Such persons paid more income tax in the 2013/14 financial year than the year before, standing at £6.6 billion ($10 billion).

Under Osborne’s proposals, any non-dom taxpayer resident in the UK for 15 or more out of the last 20 years will be deemed domiciled for the purpose of income tax, capital gains tax and inheritance tax.

Chartered accountancy firm Blick Rothenberg said the Treasury’s consultation process is too short because of the complexities involved. 

“This is a short consultation only running for 6 weeks, which is worrying given how significant the changes are and the impact they will have on the UK's personal tax regime for the years to come.  The consultation period needs to be lengthened and the commencement date delayed to April 2018 to get the changes right,” Nimesh Shah, partner at the firm, said.
 
“It is disappointing that there aren't any definite proposals to simplify the current rules.  In particular, consideration needs to be given to the situation where someone becomes deemed domiciled (because they have been resident for more than 15 years) and how and at what cost they can bring monies to the UK,” she continued. 
 
“There needs to be a provision that is simple, fair and encourages non-doms to bring money to the UK, which will naturally benefit the economy and increase revenue for the Treasury,” Shah said.
 
Separately, the government yesterday said there will be a second consultation concerning inheritance tax changes to UK residential property.  This change is targeted at bringing overseas investors of UK residential property within the scope of IHT. Originally, the government planned for these changes to take effect from April 2017 but it has now confirmed this will be delayed until April 2018. 
 
"The government will struggle on how they will enforce this change and collect the tax from overseas persons, similar to the Annual Tax on Enveloped Dwellings and non-resident capital gains tax, and therefore more time is needed to construct the collection mechanism,” Shah said.

To view more commentary about the changes and the non-domicile system, click here.