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Experts React To UK Non-Dom Rule Changes

by Robert Lee,, London

13 July 2015

Experts have warned of the impact of UK Chancellor George Osborne's decision to abolish permanent non-dom status and tighten non-dom inheritance tax (IHT) rules.

The Government will abolish permanent non-dom tax status, meaning that anyone resident in the UK for more than 15 of the past 20 years will have to pay full UK taxes on all worldwide income and gains. In addition, it will no longer be possible for someone who is born in the UK to parents who are UK-domiciled to claim non-dom status if they leave but subsequently return and take up residency in the country.

The Government will also introduce new rules to ensure that those who own residential property in the UK and would otherwise pay IHT on that property cannot avoid paying it by holding the property in an offshore structure. These changes will enter into force from April 2017.

Alex Henderson, tax partner at professional services firm PwC, said: "The changes for non-doms weren't unexpected after the attention they received in the election campaign, but are a game-changer for those affected." The Labour Party, which lost the general election, was criticized for its pledge to abolish non-dom status altogether.

Henderson added that non-doms "who face tax rises or complications as a result of the changes have a simple choice: get their affairs in order or prepare to leave the UK. The 15-year limit, which could be 13 unless you come [to the UK] on April 6 and leave on the 5th, isn't very long if, for example, you're wanting to educate your children in the UK."

Janet Hoskin, partner at international law firm Pinsent Masons, commented: "An important point of detail to note is that the [Government's] technical paper says they will consult on how to apply these rules to those from all countries – some specific double tax treaties currently give favorable IHT treatment to those from some countries (to whom the existing IHT deemed domiciled rules don't apply)."

"The IHT tax benefits of excluded property settlements will remain but not for UK residential property (whether lived in or let out). Also these settlements are to lose income tax and capital gains tax advantages. Previous rules introduced on 'enveloped properties' are now being extended to catch the IHT benefits – but without the financial limits or reliefs that are available under the existing rules – and with further anti-avoidance rules. For those currently in the UK, whether with a UK domicile of origin, or who have been here for 15 years, it will now take longer before one's UK domicile can be lost – with five years of non-residence required before being outside of UK IHT net."

TAGS: individuals | inheritance tax | tax | tax incentives | law | United Kingdom | offshore | tax planning | tax breaks | tax reform | individual income tax

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