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Changes to Domicile and Residence Tax Rules

The following is a consultation document and draft legislation that have been published by the government, announcing their proposed changes to the rules relating to tax contributions of non-domiciled UK residents.

The government believes that the rules should be changed to incorporate a fairer tax rate paid by people that choose to make the UK their home.  Simultaneously they want to ensure that the UK remains attractive to migrant workers as it strengthens the UK’s position in the global market.

The intended changes are far-reaching and although still in the consultation stage, are scheduled to come into force in April 2008.  They are based around the current remittance system and allow non-domiciled persons to make a choice annually on how they financially contribute to the UK.

From April, if non-domiciled residents want to continue gaining access to the remittance system, they will be expected to pay a flat-rate tax of £30,000 in addition to the tax on any remittances made.  If they choose not to pay this, they will be effectively opting into the UK taxation system and be taxed on all foreign income and gains as they arise.

The new legislation will only apply to non-domiciled persons who have been resident in the UK for the previous seven out of ten years.  There will also be a minimal limit of £1,000 in unremitted foreign income and gains, before individuals are required to contribute.

It seems that, if the proposals go ahead, only persons with an unremitted income exceeding £80,000 would benefit from the £30,000 flat rate.  Others will find it financially more viable to opt out of the remittance system and pay normal UK tax.

In addition the proposals contain a number of changes to the way offshore structures are taxed and in particular gains on UK sited assets will now become taxable even where these are held by offshore companies owned by UK residents or offshore trusts with UK resident settlers or beneficiaries.

This article has been provided by UK200Group.

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