Gordon Brown Finds Support For Domicile Rule Reform

by Jason Gorringe, Tax-News.com, London

20 August 2003

According to a recent Financial Times report, Gordon Brown's plans to close off a tax loophole for wealthy foreigners resident in the United Kingdom are being broadly supported by some in the accounting and tax consulting professions.

Under current rules, foreigners are not liable to pay UK tax on non-UK investment income, non-UK earnings and non-UK capital gains, provided that these monies are not brought into Britain. Non-domiciled residents are also not liable for UK inheritance tax on overseas assets.

Many organisations are supporting the prospect of reform in this area of tax law, in the hope that new legislation will make the domicile rules simpler. Also, by taking a proactive approach to the reforms, they are hoping to stave off more radical proposals that Gordon Brown may be considering.

Ernst & Young, for example, has proposed that foreigners claiming non-domicile status should be limited to a ten year period of tax exemption, whilst the Chartered Institute of Taxation supports a 17 year period of tax free worldwide income. Meanwhile, the Chartered Institute of Taxation supports simplification of the residency rules, although it is more sceptical over changes to domicile regulations.

Other groups, such as the Society of Trust and Estate Practitioners and the Association of Chartered Accountants have expressed support for shifting the burden of proof from the Inland Revenue to individuals who would need to show that they eventually intend to leave the UK.

It has been estimated by the Treasury that the government stands to gain between £1 billion and $1.5 billion from a tightening of the domicile rules according to the FT. However, some experts contend that the government could actually lose revenue if changes prompt an exodus of wealthy foreigners from the UK.

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