Domicile: Income Tax and Capital Gains Tax
Updated 5 February 2016
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Who is likely to be affected
Individuals who are currently non-UK domiciled but will be deemed UK domiciled for Income Tax and Capital Gains Tax purposes.
General description of the measure
The measure covers the Income Tax and Capital Gains Tax changes needed to implement the Chancellor’s commitment to reform the treatment of persons who are resident in the UK for tax purposes but who are not domiciled in the UK.
Draft legislation for the measure covering the Inheritance Tax side of these reforms was published for consultation at Autumn Statement 2015.
Policy objective
The UK currently provides tax advantages for some individuals who are resident here but who are not domiciled in the UK, often referred to as non-doms.
These advantages mean that foreign individuals can live and work in the UK without being subject to UK tax on income and gains earned outside the UK and not remitted here (ie brought into the UK) but they can give rise to unfair outcomes.
The government wants to reform the tax treatment of non-doms so that the UK can continue to benefit from the presence of talented foreigners while also addressing unfair tax outcomes.
Background to the measure
The Chancellor announced at Summer Budget 2015 the government’s intention to reform the taxation of UK resident individuals who are non-doms.
Included in this announcement was a commitment to include legislation in Finance Bill 2016 covering the Income Tax, Capital Gains Tax and Inheritance Tax aspects of these reforms.
When the reforms were announced at the summer 2015 Budget, the government made it clear that those long-term resident non-doms who have set up an offshore trust before they become deemed-domiciled having been resident for 15 of the past 20 years will not be taxed on trust income and gains that are retained in the trust. These protections will be legislated in Finance Bill 2017.
Since then, HM Treasury consulted on the detail of these reforms. Draft legislation was published as part of the consultation which showed how the new ‘deemed domicile’ tests would work for Inheritance Tax. This consultation also showed how legislation for the Income Tax and Capital Gains Tax could work for the purposes of access to the Remittance Basis only.
This note covers consultation on how the legislation for the Income Tax and Capital Gains Tax could work in other areas where there is a difference in treatment between UK doms and non-doms.
Detailed proposal
Operative date
This measure will have effect for most Income Tax and Capital Gains tax purposes on and after 6 April 2017.
The part of the measure affecting capital gains tax in respect of foreign chargeable gains accruing to temporary non-residents will not affect accruals arising in respect of periods of temporary non-residence beginning on or before 7 July.
Current law
UK resident non-doms currently pay tax on UK source income and gains in common with other UK taxpayers. However in contrast to those who are resident and domiciled in the UK, a non-dom’s foreign income and gains are not taxable in the UK if the income and gains remain overseas.
The main UK tax advantage of being a non-dom is that despite being resident in the UK, you pay tax on income and gains earned outside the UK only when these are remitted to the UK using the ‘Remittance Basis’ of taxation provided for in Chapter A1 of Part 14 of the Income Tax Act 2007.
In order to access these tax advantages UK resident non-doms must pay an extra levy, the Remittance Based Charge (RBC), or pay the full amount of UK tax that would be charged to a resident, UK dom.
The RBC is set at £30,000, £60,000 or £90,000 depending on the length of residence.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to deem certain persons, who would otherwise be non-domiciled in the UK as a matter of general law, to be domiciled here for the purposes of income and capital gains tax.
The two deeming provisions are given by Conditions A and B. Condition A applies to anyone born in the UK with a UK domicile of origin and whilst they are UK resident. Condition B applies to anyone who has been resident in the UK for at least 15 out of the previous 20 tax years.
The measure restricts access to the Remittance Basis so that anyone deemed UK domiciled by virtue of either Condition A or B cannot access the Remittance Basis.
In addition, the measure amends other aspects of income tax and capital gains tax law that offer advantages to non-doms but which do not directly rely on parts of the Remittance Basis to be amended.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
The updated Exchequer impact for this measure will be set out in table 2.2 of Budget 2016, and will be certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Summer Budget 2015.
Economic impact
This measure is not expected to have any significant macroeconomic impacts. The costing has been adjusted to account for behaviour, which includes increased tax planning on offshore income, non-compliance and choosing to become non-UK resident. However, behavioural response for high net worth individuals is difficult to predict.
Impact on individuals, households and families
The main impact will be on non-UK domiciled individuals who have been resident in the UK for 15 out of the last 20 years and who currently use the remittance basis of taxation. The main impact will be assessing, on a one off basis, whether or not an individual meets Condition A; and, periodically, whether or not they meet Condition B.
Equalities impacts
The measure may affect some individuals who were born outside the UK and who are most likely more wealthy males. We have considered section 149 of the Equality Act 2010 and relevant Northern Ireland legislation and apart from these do not believe that the measure will have any adverse equality impacts.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations. This measure will only affect certain non-UK domiciled individuals who will now be deemed UK domiciled.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
There will be no significant adverse operational impacts for HMRC. HMRC would expect the new deeming provisions to assist HMRC in closing of significant numbers of existing enquiries.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
Monitoring and evaluation will take place through HMRC regular contact with affected taxpayers and their representatives as well as other channels.
Further advice
If you have any questions about this change, or comments on the legislation, please contact David McDowell on Telephone: 03000 585284 or email: david.mcdowell@hmrc.gsi.gov.uk.
Declaration
David Gauke MP, Financial Secretary to the Treasury, has read this Tax Information and Impact Note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.