Government consults on reforms to the taxation of non-domiciled individuals and a statutory definition of tax residence
The Government is today publishing a consultation on its plans to reform the taxation of non-domiciled individuals (“non-domiciles").
The Government is today publishing a consultation on its plans to reform the taxation of non-domiciled individuals (“non-domiciles”). It wants to ensure that non-domiciles make a fair tax contribution, as well as encourage them to invest in the UK and simplify the current tax rules for them.
The consultation provides details on the package of reforms that were announced at Budget 2011 and will increase the tax charge for certain long-term resident non-domiciles to £50,000, provide a significant new incentive for non-domiciles to invest in the UK and simplify the rules to reduce administrative burdens. The Government does not intend to change the broad principles behind the existing tax system for non-domiciles.
The current rules discourage non-domiciles from bringing their income or capital gains to the UK, creating barriers to potential investment in the UK economy. The Government’s aim is to remove these barriers so that non-domiciles are encouraged to invest in UK business, contributing to its priority of generating growth and rebuilding the economy. However, a balance must be struck to ensure that they make a fair contribution.
David Gauke, Exchequer Secretary to the Treasury, said:
The Government wants to ensure that the rules of our tax system are fair. That is why we are increasing the tax charge for those non-domiciles who have been resident in the UK for long periods of time. At the same time, it is important that skilled individuals and investors are encouraged to come to the UK from abroad and we recognise the fact that non-domiciles can make a valuable contribution to the UK economy. That is why we want to make it easier for them to invest in UK business.
The Government is also today publishing a consultation on its plans for a statutory residence test (SRT). There is currently no full legal definition of tax residence, meaning that the rules are unclear, complicated and seen as subjective. This creates uncertainty for individuals about their residence status and is a deterrent to businesses and individuals considering investing in the UK. Today’s consultation proposes a framework for the SRT and seeks views on its design and implementation, in order to address these issues.
Both consultations published today close on 9 September 2011. A summary of responses to both will be published in the autumn. Draft legislation will be published for comment later in 2011 with a view to including final legislation in Finance Bill 2012.
Notes for Editors
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The consultation document on the reform of the taxation of non-domiciled individuals can be found in our consultation area: Reform of the taxation of non-domiciled individuals
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The tax systems of all countries need to distinguish between permanent residents and those from abroad who have less connection with the jurisdiction. The UK does this using the well-established concept of domicile and recognises the limited nature of non-domiciles’ links to the UK by having a dedicated set of tax rules for them. Under these rules, individuals who are resident but not domiciled in the UK are:
- liable to UK tax on all their income and capital gains which arise in the UK
- but only liable to UK tax on non-UK (“overseas”) income and capital gains if they are remitted to the UK
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The Government’s package of reforms, announced at Budget 2011, includes the following measures:
- increasing the existing £30,000 annual charge to £50,000 for non-domiciles who claim the remittance basis in a tax year and who have been UK resident in 12 or more of the 14 years prior to the year of claim
- allowing non-domiciles to bring overseas income and capital gains to the UK tax-free for the purpose of commercial investment in UK businesses
- simplifying the way in which some aspects of the current rules work
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To provide stability and certainty for non-domiciles, there will be no further substantive changes to their taxation for the remainder of this Parliament.
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The consultation document on a statutory definition of tax residence can be found in our consultation area: Statutory definition of tax residence
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By introducing an SRT, the Government aims to make the rules simpler and clearer but the tax residence status of the vast majority of people will be unaffected.
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