A person with non-domicile status is someone whose permanent home is located outside of the UK. It has been a system integrated into British law for over 200 years and allows people to reduce the tax they pay from overseas earnings.
The non-dom ruling has gained controversy over recent years as the wealthiest seek to take advantage of the loophole. The law has been open to criticism due to certain clauses that allowed even lifelong residents of the UK to still claim tax relief.
For example, the non-domicile status was received if your father considered his permanent home to be in a different country at your birth, even if you had never stepped outside the country. Furthermore, simply moving your assets and residence abroad would also generate non-dom status, meaning that foreign income wasn’t taxable.
In 2013, a report by the Independent newspaper claimed that there was around 116,000 people with non-domiciled status in the UK. Notable examples include Roman Abramovich, Lewis Hamilton, Sir Philip Green and James Caan.
July 2015 Budget Changes
The Summer Budget saw George Osbourne announce a change in the non-dom ruling, essentially ending the permanent entitlement of some wealthy families who have been exposing the loophole for many years and over multiple generations.
Anyone who has lived in the UK for 15 of the last 20 years will now be exempt from the overseas tax breaks. In addition, Britons who have relocated their residence abroad will also have their non-dom status removed in a bid to make the system fairer and effectively raise more money for the cabinet.
Another way for avoiding tax payments for non-domiciles was by holding UK property in offshore companies. This clause will too be closed off by the Budget changes, along with an inheritance tax to be paid by non-doms on all UK residential property.
Osbourne’s changes are due to take effect in April 2017 and raise £1.5 billion by 2020.
Effects of the Ruling
The measures could have an effect on around 15,000 individuals in the UK, including some of the aforementioned high profile names. Financial experts have predicted an exodus of some of the country’s top earners who were taking advantage of the non-dom ruling, a move which could have mixed results for the economy.
In effect, these people could simply leave the UK for 5 or more years and then return to ‘refresh’ their non-dom status.
Having faced pressure from the left around the unfairness of the current system, the government have acted to appease critics. However, some are still claiming that Osbourne still overly values presence of wealthy families in the UK and hasn’t gone far enough with his changes.
The amendments to the non-dom criteria will have varied effects on the economy, as although billions may be raised in tax savings, other taxes may be lost as wealthy benefactors relocate abroad.
For further info on non-dom status or for any West London accountancy services do get in touch.